Major thesis current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC auditing and accounting co , ltd

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Table of ContentsPreface3Chapter I: Overview of audit documentation and working papers in auditing financial statements41The concept of financial audit.41.1Nature of audit41.1.1The demand for reliable information41.1.2 Reducing information risk and the rise of audit.51.2 Audit Definition52Overview of audit documentation and working papers in auditing financial statements62.1Audit documentation62.1.1 Audit documentation definition62.1.2Types of Audit documentations72.1.3 The role and meaning of audit documentation82.2 Working papers82.2.1 Working papers definition82.2.1.1. What are working papers:82.2.1.2 Reason in preparing working papers:92.2.2 Content of Audit working papers.112.2.3 Importance of working papers142.2.3.1 Importance of Working papers152.2.4 Review of working paper152.2.4.1 Review of working paper152.2.4.2 Checking the working papers:162.2.4.3 Confidentiality of working papers.16Chapter 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co., Ltd171Overview of AAC Auditing and Accounting Co., Ltd171.1Establishment and development history17Organizational Structure of AAC192. Reality the organization of working papers system at AAC Company212.1 An overview about the reality on the AAC’s working papers212.1.1 Regulations on working papers in AAC212.1.1.1. Form of working papers212.1.1.2. The general form of standard working papers at the company AAC212.1.1.3. Symbol used222.1.1.4Typing reference on paper work252.1.1.5. Linking working paper262.1.1.6. Principle in review working paper of AAC262.2.1 Sets of working paper account cash and equivalen cash29Chapter III. SOME REMARKS AND PROPOSALS FOR ESTABLISHING WORKING PAPERS LIBRARY OF COMPANY ACCOUNTING AND AUDIT AAC.323.1 Advantages and disadvantages of current working paper323.1.1 Advantages323.1.2Disadvantages333.2 Recommendations in order to improve working papers libraries AAC Company333.2.1 Completing the design unfinished procedure in the paper work343.2.1.1Account cash an equivalent cash343.2.1.2 Account receivables.343.2.1.3Account payable35Adjusting the Balance per Bank37Adjusting the Balance per Books38Conclusion50REFERENCES50 Preface Today, audit working paper is not the strange terminology with the economists because of their important role for the audit. Building is a complete working paper systems which can be used for any company is a huge target for any public audit Company. As the fact that, in 2014, AAC Audit Company has a changing in working paper system for the new one, I think I should do a small development program one hand learning about the importance of the audit working papers system and inn the other hand contribute a small part of completing the AAC working system. With the limited content, I will divide my article into 3 chapters+CHAPTER 1: Overview of audit documentation and working papers in auditing financial statements+CHAPTER 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co., Ltd+Chapter 3:+ SOME REMARKS AND PROPOSALS FOR ESTABLISHING WORKING PAPERS LIBRARY OF COMPANY ACCOUNTING AND AUDIT AAC Chapter I: Overview of audit documentation and working papers in auditing financial statements1The concept of financial audit.1.1Nature of audit1.1.1The demand for reliable informationAs society becomes more complex, decision makers are more likely to face with the information risk which lead the investors may make wrong decisions for their investments. After scandal of Sabena Oxley, information risk becomes an emerging issue which is concerned by all economists in the world. According to “Audit and assurance services”, the information risk is: the probability that the information circulated by a company will be false or misleading. Client management has an incentive to make the business appear better than it actually may be. This can create a conflict of interest between client management and investors. There are several reasons for information risk: remoteness of information, biases and motives of the provider, voluminous data, and the existence of complex exchange transactions.Remoteness of Information: In a global economy, it is nearly impossible for a decision maker to have much knowledge about the organization with which they do business because decisions makers are not trained to collect, compile, and summarize the key operating information themselves. They need to rely on the others which can cause to intentionally or unintentionally misstated increases.Biases and Motives of the Provider: If information is provided by someone whose goals are inconsistent with those of the decision maker, the information may be biased in favor of the provider. Voluminous Data: organizations become larger accompanied by the volume of their exchange transactions. This increases the likelihood that improperly recorded information is included in the records perhaps hidden in a large amount of other information. If many minor misstatements remain undiscovered, the combined total can be significant. Complex Exchange Transactions: In the past few decades, exchange transactions between organizations have become increasingly complex and therefore more difficult to record properly. For example, the correct accounting treatment of the acquisition of one entity by another poses relatively difficult accounting problems. Other examples include properly combining and disclosing the results of operations of subsidiaries in different industries and properly disclosing derivative financial instruments.1.1.2 Reducing information risk and the rise of audit.After comparing costs and benefits, business managers and financial statement users may conclude that the best way to deal with information risk is simply to have it remain reasonably high. A small company may find it less expensive to pay higher interest costs than to increase the costs of reducing information risk. For larger businesses, it is usually practical to incur costs to reduce information risk. There are three main ways to do so.User Verifies Information: The user may go to the business premises to examine records and obtain information about the reliability of the statements. Normally, this is impractical because of cost. In addition, it is economically inefficient for all users to verify the information individually. There are some users can perform their own verification such as the tax department do this to reflect the actual tax due the government or the company use auditors to verify and evaluate the information of potential child company in the business acquisitions purpose.User Shares Information Risk with Management: There is considerable legal precedent indicating that management is responsible for providing reliable information to users. If users rely on inaccurate financial statements and as a result incur a financial loss, they may have a basis for a lawsuit against management. A difficulty with sharing information risk with management is that users may not be able to collect on losses. If a company is unable to repay a loan because of bankruptcy, it is unlikely that management will have sufficient funds to repay users.Audited Financial Statements Are Provided: The most common way for users to obtain reliable information is to have an independent audit. Typically, management of a private company or the audit committee for a public company engages the auditor to provide assurances to users that the financial statements are reliable.Decision makers can then use the audited information on the assumption that it is reasonably complete, accurate, and unbiased. The auditor work is valuable because of the auditor’s independence from the client and knowledge of financial statement reporting matters, and their checking expertise. This way is the most common way to reduce the information risk and that is economics demand for auditing.1.2 Audit DefinitionAccording to auditing and assurance services fifth edition: Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users.Financial audit is a typical activity of the audit, with the specific objective is to express an opinion confirming that the financial statements have been prepared on the basis of standards and current accounting regulations (or be acceptance), with related legal compliance, there give a true and fair view, in all material respects or notAudit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures. The financial audit assertions are about the trueness and fairness of the financial statement (include the footnotes statement) The established criteria is the common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. An external user is a person outside of an organization who does not directly run its operations and uses financial or accounting information about that company to make decisions. In other words, it’s someone who doesn’t manage or work for a company but uses its financial information. The common external user is investors, creditors and banks. 2Overview of audit documentation and working papers in auditing financial statements2.1Audit documentation2.1.1 Audit documentation definitionWith any audits, Evidence is obtained by the auditor to determine whether the information being audited is stated in accordance with the established criteria. To satisfy the purpose of the audit, auditors must obtain a sufficient quality and volume of evidence. Auditors must determine the types and amount of evidence necessary and evaluate whether the information corresponds to the established criteria. The auditors need to storage this evidence and all the work they had done in the audit documentation for audit purpose.According to the Auditing Standards Number 230 Issued under Decision No 1201999 QDBTC of September 27, 1999 of the Ministry of Finance stated: Audit records are documents auditors established, collected, sorted, used and storage stored in a certain order as evidence for one specific audit. Documents in the Audit documentation is shown on paper, on film, photographs, informatics media or any other storage media in accordance with current law2.1.2Types of Audit documentationsAccording to VSA 230, the audit documentation divided should be prepared and arranged into: permanent audit documentation and current audit documentation2.1.2.1. Permanent Audit documentationVSA 230 defines general audit documentation as follows: Permanent audit files is record contains general information about the client involves two or more audits during the financial years of a client.This files stored documents, schedules and other historical or continuous information needed for many years. This profile provides a suitable source of information about the client, service of current and future audits if contracts continue.Continually updated information is also a problem should be noted with this file. Permanent audit documentation is the useful tool for the audit. In some specific case, Auditors only focus on complete the current audit documentation and they don’t review and update the information of permanent audit files. This may lead to the reducing of quality of this information because the information in it has become outdated and often not usable anymore, leading to influence audit quality.Thus, the examination and update documents in permanent audit files on a regular basis are essential. Auditors should add new information and adjust old information when client’s Company information has changed and they must specify the changes in this file.2.1.2.2 Curret audit documentationVSA 230 has defined Current audit file as follows: current audit documentation is the file contain customer information relates only to audits of financial year”Annual audit records include documents provided by the customer, such as financial documents, accounting, taxes, of state agencies and superiors concerning the financial year; The minutes confirmed by stakeholders sent to. Besides, it include the documents of auditor; Notes on content, program and scope of the audit procedures performed and the results obtained; The audit report, management letter and other reports; The correspondence with other auditors, experts and other stakeholders;…2.1.3 The role and meaning of audit documentationAudit documentation has collected all information relevant to their audit clients to serve their audit work as:+ Storing the evidence collected by performed auditor as basis for an opinion of auditors:The information about the customer as well as the object audit fully updated and supplemented continuously throughout the audit process to ensure adequate basis for forming auditors audit opinion. This evidence obtained ensure the opinions of auditor are base on the reliable, quality assurance of audit+ Help for planning and performing the audit.Normally, an audit is taking place by two or three auditors above in the certain time period. They need audit plan to divide work and forming structure of the entitle audit to conduct the audit efficiently. To get a appropriate plan for the current year, the auditor must consult the information about the client (with the new client) and refer the previous audit documentation (with the old one). + Help for inspection, review and evaluate the quality of the audit:All documents, information and evidence collected are storing in the audit documentation. Chief audit team checked the working paper and request explanations of subordinates before giving up a higher level for approval. This is the basis for the inspectors to understand the entire contents of the audit as well as oversight the work of subordinate thus it also increases the quality of audit. + Help for the treatment of arising after the audit:The occurrence of conflicts and litigation, as well as quality test of Association practice and the Ministry of Finance is inevitable. Then audit documentation is important legal evidence help auditors solve the problems that arise after the audit. It can prove that audit was planned well, fully supervised, progress operating in accordance with auditing standards. With audit evidence collected valuable, complete, timely and audit reports were correct evaluation of audit results, audit file would minimize audit risk may occur. On the other hand the audit files also the information that helpful for future audits.2.2 Working papers2.2.1 Working papers definition2.2.1.1. What are working papers: “Working papers “are the written record of the basis for the auditors conclusions that provides the support for the auditors representations, whether those representations are contained in the auditors report or otherwise. Audit working papers also facilitates the planning, performance, and supervision of the engagement, and is the basis for the review of the quality of the work because it provides the reviewer with written documentation of the evidence supporting the auditors significant conclusions. Among other things, working papers include records of the planning and performance of the work, the procedures performed, evidence obtained, and conclusions reached by the auditor.It may be in the form of data stored on the paper, film, electronic media, or other media. They can also be used in court e.g. in case of negligent audit.Working papers are reviewed by members of the engagement team performing the work and might be reviewed by others for different purposes. Reviewers might include, for example:+ Auditors who are new to an engagement and review the prior years documentation to understand the work performed as an aid in planning and performing the current engagement.+ Supervisory personnel who review documentation prepared by other members of the engagement team.+ Engagement supervisors and engagement quality reviewers who review documentation to understand how the engagement team reached significant conclusions and whether there is adequate evidential support for those conclusions.+A successor auditor who reviews a predecessor auditors audit documentation.+ Internal and external inspection teams that review documentation to assess audit quality and compliance with auditing and related professional practice standards; applicable laws, rules, and regulations; and the auditors own quality control policies.+ Others, including advisors engaged by the audit committee or representatives of a party to an acquisition2.2.1.2 Reason in preparing working papers:+ This is basis for planning the audit. + Working papers record the evidence accumulated and the results of the audit tests+ Working papers have data for determining the proper type of audit report+ Basis for review by supervisors and partners+ Evidence audit works being performed in accordance with approved auditing standards.2.2.1.3 Purpose of audit working paperWorking papers are the evidence of work done by the auditor, he should prepare working paper in order to provide evidence that audit was properly performed according to ISA Standards. Working papers support auditor, in case he is being sue in court by the client, for negligence of audit work.+ Assist in the planning and performance of the audit+ Assist in the supervision and review of audit work+ Recorded the audit evidence resulting from the audit work performed to support the auditor’s opinion MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Table of Contents Preface Chapter I: Overview of audit documentation and working papers in auditing financial statements The concept of financial audit 1.1 Nature of audit 1.1.1 The demand for reliable information 1.1.2 Reducing information risk and the rise of audit 1.2 Audit Definition Overview of audit documentation and working papers in auditing financial statements 2.1 Audit documentation 2.1.1 Audit documentation definition 2.1.2 Types of Audit documentations 2.1.3 The role and meaning of audit documentation .8 2.2 Working papers 2.2.1 Working papers definition 2.2.1.1 What are working papers: .8 2.2.1.2 Reason in preparing working papers: .9 2.2.2 Content of Audit working papers 11 2.2.3 Importance of working papers 14 2.2.3.1 Importance of Working papers 15 2.2.4 Review of working paper 15 2.2.4.1 Review of working paper .15 2.2.4.2 Checking the working papers: 16 2.2.4.3 Confidentiality of working papers 16 Chapter 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co., Ltd 17 Overview of AAC Auditing and Accounting Co., Ltd .17 Student: Nguyễn Quang Trung Page MAJOR THESIS 1.1 Supervisor: Phạm Kim Ngọc,M.A Establishment and development history 17 Organizational Structure of AAC 19 Reality the organization of working papers system at AAC Company .21 2.1 An overview about the reality on the AAC’s working papers 21 2.1.1 Regulations on working papers in AAC 21 2.1.1.1 Form of working papers 21 2.1.1.2 The general form of standard working papers at the company AAC 21 2.1.1.3 Symbol used 22 2.1.1.4 Typing reference on paper work 25 2.1.1.5 Linking working paper 26 2.1.1.6 Principle in review working paper of AAC 26 2.2.1 Sets of working paper account cash and equivalen cash 29 Chapter III SOME REMARKS AND PROPOSALS FOR ESTABLISHING WORKING PAPERS LIBRARY OF COMPANY ACCOUNTING AND AUDIT AAC 32 3.1 Advantages and disadvantages of current working paper 32 3.1.1 Advantages .32 3.1.2 Disadvantages 33 3.2 Recommendations in order to improve working papers libraries AAC Company 33 3.2.1 Completing the design unfinished procedure in the paper work .34 3.2.1.1 Account cash an equivalent cash 34 3.2.1.2 Account receivables .34 3.2.1.3 Account payable 35 *Adjusting the Balance per Bank .37 *Adjusting the Balance per Books 38 Conclusion 50 REFERENCES 50 Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Preface Today, audit working paper is not the strange terminology with the economists because of their important role for the audit Building is a complete working paper systems which can be used for any company is a huge target for any public audit Company As the fact that, in 2014, AAC Audit Company has a changing in working paper system for the new one, I think I should a small development program one hand learning about the importance of the audit working papers system and inn the other hand contribute a small part of completing the AAC working system With the limited content, I will divide my article into chapters +CHAPTER 1: Overview of audit documentation and working papers in auditing financial statements +CHAPTER 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co., Ltd +Chapter 3:+ SOME REMARKS AND PROPOSALS FOR ESTABLISHING WORKING PAPERS LIBRARY OF COMPANY ACCOUNTING AND AUDIT AAC Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Chapter I: Overview of audit documentation and working papers in auditing financial statements The concept of financial audit 1.1 Nature of audit 1.1.1 The demand for reliable information As society becomes more complex, decision makers are more likely to face with the information risk which lead the investors may make wrong decisions for their investments After scandal of Sabena Oxley, information risk becomes an emerging issue which is concerned by all economists in the world According to “Audit and assurance services”, the information risk is: the probability that the information circulated by a company will be false or misleading Client management has an incentive to make the business appear better than it actually may be This can create a conflict of interest between client management and investors There are several reasons for information risk: remoteness of information, biases and motives of the provider, voluminous data, and the existence of complex exchange transactions Remoteness of Information: In a global economy, it is nearly impossible for a decision maker to have much knowledge about the organization with which they business because decisions makers are not trained to collect, compile, and summarize the key operating information themselves They need to rely on the others which can cause to intentionally or unintentionally misstated increases Biases and Motives of the Provider: If information is provided by someone whose goals are inconsistent with those of the decision maker, the information may be biased in favor of the provider Voluminous Data: organizations become larger accompanied by the volume of their exchange transactions This increases the likelihood that improperly recorded information is included in the records perhaps hidden in a large amount of other information If many minor misstatements remain undiscovered, the combined total can be significant Complex Exchange Transactions: In the past few decades, exchange transactions between organizations have become increasingly complex and therefore more difficult to record properly For example, the correct accounting treatment of the acquisition of one entity by another poses relatively difficult accounting problems Other examples include properly combining and disclosing the results of operations of subsidiaries in different industries and properly disclosing derivative financial instruments Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A 1.1.2 Reducing information risk and the rise of audit After comparing costs and benefits, business managers and financial statement users may conclude that the best way to deal with information risk is simply to have it remain reasonably high A small company may find it less expensive to pay higher interest costs than to increase the costs of reducing information risk For larger businesses, it is usually practical to incur costs to reduce information risk There are three main ways to so User Verifies Information: The user may go to the business premises to examine records and obtain information about the reliability of the statements Normally, this is impractical because of cost In addition, it is economically inefficient for all users to verify the information individually There are some users can perform their own verification such as the tax department this to reflect the actual tax due the government or the company use auditors to verify and evaluate the information of potential child company in the business acquisitions purpose User Shares Information Risk with Management: There is considerable legal precedent indicating that management is responsible for providing reliable information to users If users rely on inaccurate financial statements and as a result incur a financial loss, they may have a basis for a lawsuit against management A difficulty with sharing information risk with management is that users may not be able to collect on losses If a company is unable to repay a loan because of bankruptcy, it is unlikely that management will have sufficient funds to repay users Audited Financial Statements Are Provided: The most common way for users to obtain reliable information is to have an independent audit Typically, management of a private company or the audit committee for a public company engages the auditor to provide assurances to users that the financial statements are reliable Decision makers can then use the audited information on the assumption that it is reasonably complete, accurate, and unbiased The auditor work is valuable because of the auditor’s independence from the client and knowledge of financial statement reporting matters, and their checking expertise This way is the most common way to reduce the information risk and that is economics demand for auditing 1.2 Audit Definition According to auditing and assurance services fifth edition: Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users Financial audit is a typical activity of the audit, with the specific objective is "to express an opinion confirming that the financial statements have been prepared on the Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A basis of standards and current accounting regulations (or be acceptance), with related legal compliance, there give a true and fair view, in all material respects or not Audit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures The financial audit assertions are about the trueness and fairness of the financial statement (include the footnotes statement) The established criteria is the common set of accounting principles, standards and procedures that companies use to compile their financial statements GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information An external user is a person outside of an organization who does not directly run its operations and uses financial or accounting information about that company to make decisions In other words, it’s someone who doesn’t manage or work for a company but uses its financial information The common external user is investors, creditors and banks The overview of the financial statement audit Overview of audit documentation and working papers in auditing financial statements 2.1 Audit documentation 2.1.1 Audit documentation definition Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A With any audits, Evidence is obtained by the auditor to determine whether the information being audited is stated in accordance with the established criteria To satisfy the purpose of the audit, auditors must obtain a sufficient quality and volume of evidence Auditors must determine the types and amount of evidence necessary and evaluate whether the information corresponds to the established criteria The auditors need to storage this evidence and all the work they had done in the audit documentation for audit purpose According to the Auditing Standards Number 230 Issued under Decision No 120/1999 / QD-BTC of September 27, 1999 of the Ministry of Finance stated: Audit records are documents auditors established, collected, sorted, used and storage stored in a certain order as evidence for one specific audit Documents in the Audit documentation is shown on paper, on film, photographs, informatics media or any other storage media in accordance with current law 2.1.2 Types of Audit documentations According to VSA 230, the audit documentation divided should be prepared and arranged into: permanent audit documentation and current audit documentation 2.1.2.1 Permanent Audit documentation VSA 230 defines general audit documentation as follows: Permanent audit files is record contains general information about the client involves two or more audits during the financial years of a client This files stored documents, schedules and other historical or continuous information needed for many years This profile provides a suitable source of information about the client, service of current and future audits if contracts continue Continually updated information is also a problem should be noted with this file Permanent audit documentation is the useful tool for the audit In some specific case, Auditors only focus on complete the current audit documentation and they don’t review and update the information of permanent audit files This may lead to the reducing of quality of this information because the information in it has become outdated and often not usable anymore, leading to influence audit quality Thus, the examination and update documents in permanent audit files on a regular basis are essential Auditors should add new information and adjust old information when client’s Company information has changed and they must specify the changes in this file 2.1.2.2 Curret audit documentation VSA 230 has defined Current audit file as follows: "current audit documentation is the file contain customer information relates only to audits of financial year” Annual audit records include documents provided by the customer, such as financial documents, accounting, taxes, of state agencies and superiors concerning the financial year; The minutes confirmed by stakeholders sent to Besides, it include the Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A documents of auditor; Notes on content, program and scope of the audit procedures performed and the results obtained; The audit report, management letter and other reports; The correspondence with other auditors, experts and other stakeholders;… 2.1.3 The role and meaning of audit documentation Audit documentation has collected all information relevant to their audit clients to serve their audit work as: + Storing the evidence collected by performed auditor as basis for an opinion of auditors: The information about the customer as well as the object audit fully updated and supplemented continuously throughout the audit process to ensure adequate basis for forming auditors audit opinion This evidence obtained ensure the opinions of auditor are base on the reliable, quality assurance of audit + Help for planning and performing the audit Normally, an audit is taking place by two or three auditors above in the certain time period They need audit plan to divide work and forming structure of the entitle audit to conduct the audit efficiently To get a appropriate plan for the current year, the auditor must consult the information about the client (with the new client) and refer the previous audit documentation (with the old one) + Help for inspection, review and evaluate the quality of the audit: All documents, information and evidence collected are storing in the audit documentation Chief audit team checked the working paper and request explanations of subordinates before giving up a higher level for approval This is the basis for the inspectors to understand the entire contents of the audit as well as oversight the work of subordinate thus it also increases the quality of audit + Help for the treatment of arising after the audit: The occurrence of conflicts and litigation, as well as quality test of Association practice and the Ministry of Finance is inevitable Then audit documentation is important legal evidence help auditors solve the problems that arise after the audit It can prove that audit was planned well, fully supervised, progress operating in accordance with auditing standards With audit evidence collected valuable, complete, timely and audit reports were correct evaluation of audit results, audit file would minimize audit risk may occur On the other hand the audit files also the information that helpful for future audits 2.2 Working papers 2.2.1 Working papers definition 2.2.1.1 What are working papers: “Working papers “are the written record of the basis for the auditor's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise Audit working papers also facilitates the planning, performance, and supervision of the engagement, Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A and is the basis for the review of the quality of the work because it provides the reviewer with written documentation of the evidence supporting the auditor's significant conclusions Among other things, working papers include records of the planning and performance of the work, the procedures performed, evidence obtained, and conclusions reached by the auditor It may be in the form of data stored on the paper, film, electronic media, or other media They can also be used in court e.g in case of negligent audit Working papers are reviewed by members of the engagement team performing the work and might be reviewed by others for different purposes Reviewers might include, for example: + Auditors who are new to an engagement and review the prior year's documentation to understand the work performed as an aid in planning and performing the current engagement + Supervisory personnel who review documentation prepared by other members of the engagement team + Engagement supervisors and engagement quality reviewers who review documentation to understand how the engagement team reached significant conclusions and whether there is adequate evidential support for those conclusions +A successor auditor who reviews a predecessor auditor's audit documentation + Internal and external inspection teams that review documentation to assess audit quality and compliance with auditing and related professional practice standards; applicable laws, rules, and regulations; and the auditor's own quality control policies + Others, including advisors engaged by the audit committee or representatives of a party to an acquisition 2.2.1.2 Reason in preparing working papers: + This is basis for planning the audit + Working papers record the evidence accumulated and the results of the audit tests + Working papers have data for determining the proper type of audit report + Basis for review by supervisors and partners + Evidence audit works being performed in accordance with approved auditing standards 2.2.1.3 Purpose of audit working paper Working papers are the evidence of work done by the auditor, he should prepare working paper in order to provide evidence that audit was properly performed according to ISA Standards Working papers support auditor, in case he is being sue in court by the client, for negligence of audit work + Assist in the planning and performance of the audit + Assist in the supervision and review of audit work Student: Nguyễn Quang Trung Page MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A + Recorded the audit evidence resulting from the audit work performed to support the auditor’s opinion 2.2.1.4 Purposes served by working papers Audit working papers serve four major purposes: A They constitute a permanent record of the objectives and scope of the audit, as well as the work performed during the audit Work papers organize and coordinate all phases of the audit B They contain the back-up material in support of the audit findings conclusions, opinions, and comments C They contain the basic material from which the audit report is prepared D They reflect the quality and reliability of the work performed by the auditor and substantiates and explain in detail the opinions and findings presented to University management Working papers have a number of additional uses both during and after the audit These are to control audit progress by showing the auditor what audit procedures have been completes and what audit procedures have not been completed Working papers also provide: + A basis for study of patterns and trends + Aid in the internal audit staff’s professional development +Detail supporting material for use in discussion with operating personnel +A source of evidence in litigation and in administrative actions +A basis for supervisory review and evaluation of audit performance +A permanent record for use in planning and carrying out future audits +Demonstrate the auditors have complied with the Standards for the Professional Practice of Internal Auditors 2.2.1.5 Function of audit working paper Helpful in making dentine audit report Working papers are used for making denuine audit report Without knowing the reality of different facts which are written in working papers, auditor cannot make audit report which shows accurate view of company’s financial statements Uses as evidence Sometime, any party may behave like a neglect person, at that time; these working papers will become the evidence of reported facts Direction to auditing procedure Working papers are also good guide to direct the audit procedure If auditor wants to audit work step by step, he should collect all working papers which are required for auditing and set it according to the steps of auditing Doing this, audit work may be easy Check the weakness of internal control Student: Nguyễn Quang Trung Page 10 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Some instruction for that working paper + The sources of information: the auditor may use the cut off bank statement, general ledger book, combined with interviewing the client’s accountant to have a suitable explained for the difference *Adjusting the Balance per Bank + Deposits in transit are amounts already received and recorded by the company, but are not yet recorded by the bank For example, a retail store deposits its cash receipts of August 31 into the bank's night depository at 10:00 p.m on August 31 The bank will process this deposit on the morning of September As of August 31 (the bank statement date) this is a deposit in transit Because deposits in transit are already included in the company's Cash account, there is no need to adjust the company's records However, deposits in transit are not yet on the bank statement Therefore, they need to be listed on the bank reconciliation as an increase to the balance per bank in order to report the true amount of cash +Outstanding checks are checks that have been written and recorded in the company's Cash account, but have not yet cleared the bank account Checks written Student: Nguyễn Quang Trung Page 37 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A during the last few days of the month plus a few older checks are likely to be among the outstanding checks Because all checks that have been written are immediately recorded in the company's Cash account, there is no need to adjust the company's records for the outstanding checks However, the outstanding checks have not yet reached the bank and the bank statement Therefore, outstanding checks are listed on the bank reconciliation as a decrease in the balance per bank +Bank errors are mistakes made by the bank Depending on the error, the correction could increase or decrease the balance shown on the bank statement *Adjusting the Balance per Books +Bank service charges are fees deducted from the bank statement for the bank's processing of the checking account activity (accepting deposits, posting checks, mailing the bank statement, etc.) Other types of bank service charges include the fee charged when a company overdraws its checking account and the bank fee for processing a stop payment order on a company's check The bank might deduct these charges or fees on the bank statement without notifying the company When that occurs the company usually learns of the amounts only after receiving its bank statement Because the bank service charges have already been deducted on the bank statement, there is no adjustment to the balance per bank However, the service charges will have to be entered as an adjustment to the company's books The company's Cash account will need to be decreased by the amount of the service charges + An NSF check is a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance As a result, the check is returned without being honored or paid (NSF is the acronym for not sufficient funds Often the bank describes the returned check as a return item Others refer to the NSF check as a "rubber check" because the check "bounced" back from the bank on which it was written.) When the NSF check comes back to the bank in which it was deposited, the bank will decrease the checking account of the company that had deposited the check The amount charged will be the amount of the check plus a bank fee Because the NSF check and the related bank fee have already been deducted on the bank statement, there is no need to adjust the balance per the bank However, if the company has not yet decreased its Cash account balance for the returned check and the bank fee, the company must decrease the balance per books in order to reconcile Check printing charges occur when a company arranges for its bank to handle the reordering of its checks The cost of the printed checks will automatically be deducted from the company's checking account Because the check printing charges have already been deducted on the bank statement, there is no adjustment to the balance per bank However, the check printing Student: Nguyễn Quang Trung Page 38 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A charges need to be an adjustment on the company's books They will be a deduction to the company's Cash account +Interest earned will appear on the bank statement when a bank gives a company interest on its account balances The amount is added to the checking account balance and is automatically on the bank statement Hence there is no need to adjust the balance per the bank statement However, the amount of interest earned will increase the balance in the company's Cash account on its books +Notes Receivable are assets of a company When notes come due, the company might ask its bank to collect the notes receivable For this service the bank will charge a fee The bank will increase the company's checking account for the amount it collected (principal and interest) and will decrease the account by the collection fee it charges Since these amounts are already on the bank statement, the company must be certain that the amounts appear on the company's books in its Cash account +Errors in the company's Cash account result from the company entering an incorrect amount, entering a transaction that does not belong in the account, or omitting a transaction that should be in the account Since the company made these errors, the correction of the error will be either an increase or a decrease to the balance in the Cash account on the company's books * With the experience auditors, they can complete all the work without this working paper, but to improving the quality of the cash working papers, AAC should add this working paper to their system B Beside checking the mathematical accuracy, auditor must also check the existence of the “deposit in transit” and “outstanding checks” I propose the following working paper to achieve this purpose This working paper is basically the sampling of item and test the relative information about these chosen items Student: Nguyễn Quang Trung Page 39 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A 3.3.2 Account receivable working papers system A The receivable reconciliation Similar with the cash reconciliation, the client must the receivable reconciliation to explain the differences between the general ledger and the confirmation When the reconciliation is conducted, there may be differences between the two amounts for the following reasons: +A journal entry was made to the general ledger account that bypassed the subsidiary sales ledger This is the most common reason for a difference +A billing was accidentally posted to an account other than the trade receivables account This is the least common reason for a difference, since the billing module is set to automatically record all billings to the correct account +The aged receivables report was run as of a different date than the date used to obtain the general ledger balance This reconciliation process is typically conducted as part of the month-end closing activities prior to issuance of the financial statements If the reconciliation is not conducted and there turns out to be an error in the general ledger, this means there could be a material inaccuracy in the financial statements At a minimum, there should be a reconciliation of accounts receivable at the end of the fiscal year, so that any inaccuracies related to receivables will have been removed from the financial statements prior to their examination by the company's external auditors For the External auditors, the suitable working papers for that work is Student: Nguyễn Quang Trung Page 40 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A The procedure is designed by combining the confirmation letters procedure and the summary reconciling receivable procedure If auditors find out the different between the confirmed balance and the balance in subsidiary ledger, they can the reconciling receivable to find the problem and write the result in this table The reference will lead the auditor to the evidence working paper in which auditor exam the difference The evidence working papers can be designed similarly with the format of reconciling cash working paper The sources to exam the difference above are general ledger and receivable detail, the aged accounts receivable report Receivable detail: The detailed listing of unpaid customer billings that should match the ending balance in the general ledger is usually recorded in a subsidiary sales ledger To extract this information for reconciliation purposes, print the aged accounts receivable report as of the final day of the reporting period The totals on this report are then compared to the receivable total in the general ledger B Verify the existence of account receivable That is the additional audit procedures which help auditors verify the existence of account receivables That is when customers not respond to confirmation; auditors must find another way to assure that the customers and their account balance are right Auditor can examine supporting documents to verify the shipment of the goods and evidence of subsequent cash receipts to determine if accounts were collected In contrast, if the customers respond to confirmations, these additional audit procedures are not imperative C Account receivable roll forward The procedure again is the additional tests which help the auditors ensure the balance of the account at the end of fiscal year is true This work is developing an expectation of the period-end balance based on the knowledge gained as a result of Student: Nguyễn Quang Trung Page 41 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A interim tests Confirm or adjust the expectation at period end based on a review for significant unusual reconciling items and inquiries as to changes since the Interim Date, including both anticipated and unexpected changes and corroborate such changes The auditors believe that the information’s of the interim audit or the prior audit are right and base on it, they perform all transactions occur until the year end If the calculated numbers are the same with the number in the general ledger, the work could be evidence prove the trueness of account In many way else, the differences occur, auditor must perform some another test to handle the difference If auditors the substantive analytical procedures, they must compare the difference between the expectation and the recorded period-end balance to an appropriate threshold If differences are less than threshold, auditors may accept the period-end balance If differences exceed the threshold, auditors must obtain explanations for the full amount for differences exceeding threshold, not just that part that exceeds the threshold Explanations often arise from the review of significant noroutine, nonsystematic adjustments made between the Interim Date and the balancesheet date If they the test of detail, they must exam the sales journal as well as the cash receipt journal to find out the difference Substantive analytical procedure: working paper sample Student: Nguyễn Quang Trung Page 42 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A 3.3.3 Account payable working paper system A The payables reconciliation Similar with receivable accounts and cash account I propose two supplemental tests for the account payable working paper system Those are the Payable reconciliation and the payable roll forward Student: Nguyễn Quang Trung Page 43 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A B The payable rollforward 3.3.4 Working papers system of account Revenue The AAC working papers of account revenue are not shown the goals need to be achieved when implementing the audit The audit procedures are designed cannot cover all the risks of revenue account I would like to focus on the main procedures of this working paper The procedure number in the audit program is “Sampling of revenue recognized in the year and check the relevant original documents” The Related working paper is G147 Student: Nguyễn Quang Trung Page 44 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A In this working paper, the sources of data are the revenue detail books of client So the sampling method of AAC is not appropriate because it may be cover the “accuracy” assertion of the revenue but it may not cover the assertion “complexness” Thus, I propose AAC change the sampling method in account revenue They should collect all the sale journals in the sales department then perform the sampling and finally check the relevant original documents as well as check in the accounting revenue book to know whether all sampling are adequately recorded or not In additions, AAC must change the sources of data in this working paper They must change like that, “collect the sale journal in the sale departments” instead of “collect the accounting detail book” Beside, when perform an audit in the big client with a thousand sales transaction, how can this working paper can cover the risk of revenue account without spending a lot of effort, money and time checking the original documents We can see that, this working papers expose weaknesses in scale of sampling Therefore, I suggest an analytical procedure to improve the quality of this working paper + I want to introduce a common procedure which big company common use That is Substantive analytical procedure model That is different with the financial analysis and variance analysis This approach is extremely effective for accounts which tend to understate recorded and reduce the number of sampling test Each SAP model has stages Start: building the estimation models This Model can be used for estimated account like revenue and expenses (Note: can’t be used for receivable and payable accounts) The data in the model must be independent of the accounting department Then, calculate the threshold It should be (1-4%) of MP or 6% of the book value Next Compare the expected number with the recorded number Expected number is the number is calculated by the SAP Compare the difference in step with the threshold (step 2) If step is smaller than step 2, we can finish the procedure If not, the auditor must return to step one They must learn the model again to find out the difference and review the independence and reliability of the information used in the model They can ask the accountant for the unusual activity that may cause the difference such as promotion, accident… to remake the SAP model After excluding the reasonable difference, the difference is still high, the auditor must remove the model and start does the test of details Applies to AAC, they can use SAP model to reduce the number of sampling First, the auditor must separate the revenue into the group to conduct the test Example: sale revenue of product A, Sale revenue of product B … Then the auditor divides again above group into types Types one, the revenue can apple the SAP model and the rest is type two As I mention above, with a reliable Student: Nguyễn Quang Trung Page 45 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A estimated model, auditor can be use this estimation to perform the audit instead of perform the hard of test of detail So, auditor may save a lot of time to the estimation than to sampling a dozen of transaction and begin to check the relative original documents And the point is the evidences obtained from this method have equivalent value with the evidences obtained from the test of details Thus, auditors the estimation for the estimable group, and carry the test of detail for the rest This approach is not only save time for the auditor but also reduce the work of detail test That is why the big company or the experience auditors usually use this approach But the problem of this method is constructing the reliable model of estimation is not easy Next, I will show a sample of that kind of working paper for the easy type of revenue “purchasing” First: classify the revenue of client Then create the reference for each product The Product can use SAP model will apply for the following working paper The rest product will take test of detail Student: Nguyễn Quang Trung Page 46 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A This given model is the model for the easy revenue transaction Remember, the price and the quantities of that product sold are taken from the outside of accounting department In this example, these figures are taken in the sales department of Client Company After constructing the estimated revenue, the auditors will compare the account number with the estimation If the difference is smaller than threshold, that mean the auditor has already proved the trueness of the number, then continue with the other revenue group Otherwise, auditors must check out the model that he created to make sure its reliability They can ask the accountant to know whether in this year, there were any changes that affected the price or quantity of this product such as the labors accident, the promotion program, or e.t.c Thus, following the additional information from accountants, the auditor will adjust the expected revenue If the difference now is lower than threshold, that is good If it still creates the confusion, the auditors should carry the test of detail for this type of revenue and forget the estimation Base on the ability of auditors, the SAP model can be used in many different ways It may be extremely complex in some specific cases but within the limitation of thesis, I just propose notable attractions of this method 3.3.5 Working papers system of account Cost of goods sold The sets working papers of account Cost of goods sold at AAC also reveal many shortcomings in the construction of audit procedures I concentrate on the main procedure of the account The 3.1 procedures in the audit program sheet: “Compare the cost of sales with the estimated based on the corresponding amount arising on account of inventories and collection production costs during the year, according to the formula”: COGS = SPDD beginning of period + Finished Goods baseline + baseline + Production costs (cost of goods purchased) arising during the period - end of period SPDD - To the end of the period - end of period Goods The related working paper is G244 The weaknesses of this working paper are + not reflect the cost flow in COGS + not reference the sources of data + not have procedures to check the accuracy of data used Student: Nguyễn Quang Trung Page 47 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A From the disadvantages above, I would like to rebuild audit procedures which better suited for the given objective: Item * Description Amount T/M Beginning balance 100 [PY] ADD Purchase 125 ! LESS Sales of unused good 12 {e} Transfer to the overhead 20 Ending balance 162 RAW MATERIALS {b} RAW MATERIALS CONSUMPTION * Cost of good sold 31 TOOLS Beginning balance 729 [PY] ADD - Purchases 12 ! LESS - Transfer to deferred expenses 11 {b} - Transfer to overhead 10 Ending balance 562 {b}{f} Tools & Dies Consumption 158 * DIRECT LABOR COST 155 * OVERHEAD COST INDIRECT EXPENSE 508 ! Depreciation 259 ! Student: Nguyễn Quang Trung Page 48 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Materials for overhead 100 total 867 ** > PRODUCTION COST * WIP 867 1,211 Beginning balance [PY] Ending balance 120 {b} FINISH GOODS COST * 1,091 FINISH GOODS ** Beginning balance 124 [PY] Ending balance 220 {b} > COGS 995 Account number 1000 Diff (5) explain The ideal of this working paper design is leading the concentration of auditor to the flow of expenses that contribute to the COGS The auditor will work with each account to collect the relative information about COGS then calculate the COGS and compare with the accounting number Example for the collection information’s: With the account raw material Auditors collect the beginning and ending balance, the increase and unusual decrease of raw material in the year then calculate the Raw materials consumption in the year by the formula Raw material consumption = beginning balance + ADD- unusual Less – Ending balance The information is write in the spreadsheet is reference with the sources of data such as Beginning balance [PY], purchase (!) That is the hyper link to the working paper that auditor had already done about checking the purchase raw material in the year on the set of raw material working papers Similarly, all the information is referenced to the reliable sources Compared with the current working paper of AAC, this spreadsheet takes more effectiveness, That is: +It can show the flow of expenses to the COGS + The information used has reliable sources or evidences that means the auditor had already prove the trueness of this information + Showing the work that auditors has been completed to ensure the given audit objectives Student: Nguyễn Quang Trung Page 49 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A Conclusion Today, in the context of economics is developing complexity; the demand for reliable information resources became the primary need for every individual involved in the economy Therefor audit play an important role in boosting the economic due to the fact that, audit can ensure the reliable source of information for interested users Thus each audit firm must show their ability as well as their work professtional to become the most reputable enterprice Establishing the strong working papers contribute a significant part for each audit firm to achieve this objective With solutions and proposals mentioned above, I hope to contribute a small part to the working paper comprehensive development program And above of think, I gratefully acknowledge the contribution of my supervisors: Phạm Kim Ngọc, M.A and Auditing and Accounting Company Without his guidance, tolerance and encouragement this thesis would not have been completed REFERENCES 1, Audit standard o 230: “Audit documentation” 2, Audit and insuarance services book fifth edition of Alvin A Arens, Randal J Elder, Mark S Beasley 3,”Audit working paper” article posted in website http://www.accaglobal.com/zw/en/student/exam-support-resources/fundamentalsexams-study-resources/f8/technical-articles/effective-audit-service.html Last update 25/04/2015 4,AAC.com.vn Student: Nguyễn Quang Trung Page 50 MAJOR THESIS Supervisor: Phạm Kim Ngọc,M.A 5,“AU Section 329Substantive Analytical Procedures” article posted in website http://pcaobus.org/Standards/Auditing/Pages/AU329.aspx date posted 15/04/2014 Student: Nguyễn Quang Trung Page 51 ... 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co. , Ltd Overview of AAC Auditing and Accounting. .. 1.1.1 The establishment and development of AAC AAC Auditing and Accounting Co. , Ltd, previously being Auditing and Accounting Company attached to the Ministry of Finance, is one of the earliest audit. .. Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co. , Ltd +Chapter 3:+ SOME REMARKS AND PROPOSALS
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Xem thêm: Major thesis current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC auditing and accounting co , ltd, Major thesis current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC auditing and accounting co , ltd, The working papers prepared during the engagement, including those prepared by the client for the auditor, are the property of the auditor. The only time anyone else, including the client, has a legal right to examine the papers is limited specified situa, Chapter 2: Current situations of designing audit procedures in auditing the financial statements of listed companies implemented by AAC Auditing and Accounting Co., Ltd, Chapter III. SOME REMARKS AND PROPOSALS FOR ESTABLISHING WORKING PAPERS LIBRARY OF COMPANY ACCOUNTING AND AUDIT AAC.

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