đề án audit for cash items in financial statement

Audit Project

TABLE OF CONTENTS

INTRODUCTION
In the trend of economic globalization, Vietnam has transformed itself and has
earned achievements about the significant development of economics and
society, those are admitted and appreciated internationally. In the market


Audit Project

economy, the economic and financial activities are required to be equitable,
transparent and public. That is actually necessary for investors, entrepreneurs,
traders and Government. High reliability of the financial Information to use,
consider to make investment decisions, business decisions or to decide
economic issues relating to finance, local budget, Government. Therefore,
they can only be assured, boldly making economic and financial decisions
when the information provided by the accountant is assessed and verified by a
professional organization or independent specialist. That is audit activities by
the auditors complement.
Cash plays an important role in the enterprise, as a means of tool makes all
business operations be ongoing and regular. Cash relates to trading activities,
payment and other financial operations of the business. Thus, Cash items
affect most of the items on financial reports, especially the accounting balance
sheet, cash flow statement. Also due to the characteristics of high liquidity,
lightweight, easy transportation, large amount of cash in receipt and payment
cycles, it is easy to have fraud and error. Therefore cash items always contain
potential risks and become one of the material items.
As the importance of audit financial statements and role of cash items I
mentioned above, I choose the topic: “Audit the cash items in the financial

statements” for my assignment to discover the phase to complement audit and
discuss about the practical activities in Vietnam.
This project is divided into 3 chapters:
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
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Chapter 1: The conceptual responsibilities and framework, regulations
to audit the cash balances in financial statement
Chapter 2: Step to audit cash balances
Chapter 3: Assessment and recommendation about the implementation
of audit in Vietnam

Due to my limited professional knowledge and time, there would be some
inevitable errors and defects in the project.


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I sincerely thank xxx for the understanding and enthusiastic guidance for me
to complete this project.


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CHAPTER I: THE CONCEPTUAL RESPONSIBLITIES
AND FRAMWORK, REGULATIONS TO AUDIT THE
CASH BALANCES IN FINANCIAL STATEMENT
1.1. Objectives for the audit of cash balances
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The purpose of an audit is to provide financial statement users with an
opinion by the auditor on whether the financial statement are presented
fairly, in all material respects, in accordance with the applicable financial
accounting framework.
The audit of cash is considered an important part of an audit mainly due
to two reasons:
• Almost all business transactions will be ultimately settled
through the cash accounts, the audit of cash accounts also assists
in the verification of other asset and liability accounts as well as
revenue and expenses.
• Cash is the highly liquid asset in a company and it is an area of
high inherent risk since there is a relatively high risk of
misappropriation.
Therefore, auditors have to give comment about the truthfulness and
fairness of the recorded information regarding to cash items through the
accumulation of appropriate evidence to support the regarding assertion.
Assertions

Descriptions

1. Existence

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2. Completeness

•

3. Accuracy

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4. Cut-off

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To ensure that the cash is actually in
existence and belong to the company at a
given date or at the year-end date.
To ensure that there is no unrecorded cash.
To ensure cash at bank stated on the
reconciliation is accurate.
To ensure that cash receipts and cash
disbursement transactions are correctly
recorded in the proper period.


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5. Presentation
and disclosure

•

6. Detail tie-in

•

To ensure that the cash balance and related
statement of comprehensive income entries are
correctly disclosed in the financial statements
in accordance with legislation and accounting
standards.
Cash in the bank as stated on the
reconciliation foots correctly and agrees with
the general ledger.

1.2. The features of cash accounting in each enterprise:
1.2.1.
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Overview about cash items

It is needed to discuss about the types of cash accounts commonly used
by most company because the auditing approach to each varies. Auditors
are likely to learn about the various types of cash balance when they
obtain an understanding of the client’s business.
Cash items relate to most of transactions such as purchasing, sales,
payment and the financial operation of the company, so these cash items
affect to assets items, and other items as revenue, expenses, payable , and
vice versa. Moreover, cash is used to calculate the important ratio to
analyze and assess the solvency of the business. Also, the fluctuation,
decrease and increase of cash inflow or outflow due to occurred

transaction reflects how the company use money efficiently or not.
SALES AND COLLECTION CYCLE
CASH
PAYROLL AND PERSIONEL CYCLE
ACQUISITION AND PAYMENT CYCLE
CAPITAL REQUISITION AND REPAYMENT CYCLE
INVENTORY AND WAREHOUSING CYCLE

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It is apparent to see the role of cash items through the relationship
between cash and other cycle in the following table:


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There are 3 types of cash accounts:
 Cash on hand (Account 111):
 This account is used to record receipts, disbursements and
balance of the enterprise‘s fund, including: Vietnamese dong,
foreign currencies and monetary gold. Only received,
dispatched or inventoried cash, foreign currencies, monetary
gold shall be recorded to account 111 – Cash
 When receiving or dispatching cash fund, receipt slips,
payment slips with signatures of payees and payers,
competent persons are required in accordance with accounting

source document. Deposit order and payment order must be
attached in special cases.
 Cash in bank (Account 112):
 This account shall be used to record current amounts and
increases and decreases in demand deposits of the enterprise
in a bank. Credit notes, debit notes or bank statements
enclosed with original documents (payment order, collection
order, depository transfer check, certified check, etc) shall be
recorded to Account 112 "Cash in bank".
 When receiving documents sent from the bank, the accountant
must collate them with enclosed original documents. If there
is any difference between figures in enterprise's ledger, in
original documents and in the bank‘s documents, the
enterprise must notify the bank to collate, verify and promptly
handle. At the end of the month, if it fails to uncover the
reasons for differences, the accountant shall record according
to the bank's figures stated in debit notes, credit notes or
bank's statements.
 Cash in transits
 This account shall be used to record amounts of money which
an enterprise paid to the State bank, the State Treasury, or
transferred by post to a bank, but no credit note or
confirmation of payment to other enterprises has been
received; or the enterprise made wire transfer from their bank


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account to other enterprises, but no debit note or bank
statement has been received.

1.2.2.
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General criteria regarding of accounting for cash of the audit
clients

Cash item in the audit client is a large item and very important, it affects
the liquidity as well as the solvency of the maturity debt, long term debt.
Cash item is an indispensable element in the operation of the business, so
it has material influence on financial statements, audit reports. Because of
its susceptibility to theft and significantly misstatement, if the internal
control is not efficient, that is an opportunity to exist loophole for fraud
declarations of how much money spent, and withdrawn for personal
purposes. Therefore, to detect to fraud and errors that may incur in the
company, it is needed to examine the cash accounting of clients to comply
with the regulations or not. The following standard is general for cash
items in all companies that need to be comply with:
Enterprises that use foreign currency in production and business
activities, must be converted into Vietnam dong at the actual exchange
rate or average exchange rate interbank that State Bank of Vietnam
announced at the time when the transaction incurred. When the foreign
currency on hand or foreign currency in banks are disbursed, the
exchange rate is determined based on the actual exchange rates of foreign
currencies with a suitable method such as first in first out, last in first
out , the average exchange rate. At the end of the accounting year, the

cash and bank deposits in foreign currency must be revalued at the
average exchange rate in the interbank at the closing date.
The monetary gold shall be re-evaluated according to the buying prices
on the domestic market at the time in which the financial statement is
prepared. The buying prices on the domestic market are prices announced
by the State bank. In case the State bank fails to announce gold buyingprices, the buying-prices announced by enterprise entitled to trade in gold
as prescribed shall be chosen.


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Cash in transit are accounted for in the following cases: Receiving cash or
check is sent directly to the bank, payment via post office, collecting sales
tax to the treasury.
The accounts for cash items will be debited regarding of the increase of
cash, and be credited regarding of the decrease of cash.
The receipts and payments in enterprise’s funds are required to have
collection orders or payment order with the signature of manager, or the
authorized person, and chief accounting. According to the collection
orders and payment orders, the accountants make the receipt slips and the
payment slips. Then, these documents are sent to treasurers, based on
them, treasurers proceed to receive or pay cash and sign, stamp the
supporting documents (payment slips, receipt slips). These signed and
stamped document are used to record in the cash book report and then
submit report funds and fund documents attached to cash accounting.

Treasurer must regularly check the data on cash book compared with the
actual cash amount and with the accounting data. If you notice
discrepancies to find the cause and take measures for timely handling.
For cash in bank, evidences for accounting to post entries to bank account
are the debit note, credit note or bank statement accompanied by the
original documents (certified checks, standing orders, encashment
orders,...). When accountants receive incoming documents from banks,
they need to compare with the original documents attached, identify
receipts and payment content to post accounting entries accurately.
Accountant for cash in bank opens the detail of books for monitoring
each type of bank deposits, foreign currency, gold, silver, precious stones
at each bank in terms of quantity and value.

1.3. Internal control for cash receipts and disbursements
1.3.1.
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Fundamental requirements to control the cash items:

Cash management is one of the important activities of the enterprise’s
financial manager, related to the management of accounts receivable,
inventory and accounts payable, thus related to financial solvency. Cash


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management is actually using that money most effectively to meet all the
other related demands of the business.
Integrity and ability of employees: is the first factor to ensure an effective
Internal Control since employees directly perform the task of keeping
money in a bank deposit, record entries in accounting books ... Besides
there should be cross-checked the assignment of different tasks among
employees to limit the fraud or intentional collusion to steal money from
corporate funds.
Segregation of Duties: Separate the task of keeping cash with updating
the accounting books. Cash accountants do not have to keep money, while
cash treasurer do not have to approach the accounting books. Enterprises
should establish the company policy about stocktaking, specific
responsibilities for individuals in the term of cash controlling in the fund.
All transaction related to receipt and payment, preserve and conserve cash
is the treasurer’s responsibilities. Treasurer is appointed by director and
be responsible for maintaining the cash fund. Treasurer must not ask
someone else to assist. In a necessary circumstance, he(she) must
authorize a person to do the job that be agreed in signed document by the
director of the enterprise. Treasurer must regularly check the fund,
guarantee that cash must be consistent with the balance in the cash book.
Every day, after the receipt and payment of cash, the treasurer shall
record in the cash book immediately, and submit reports to the funds
accountant at the end of each day.
There are policies to match the remaining cash budget with the financial

situation of the company.
It is needed to separate the functions of payment approval and signing
checks.
Focus on collecting clues: due to the sensitivity of the money so
minimizing the ability of cash loss is to reduce the number of the
cashiers.
Monitoring cash collection activities about time and place where to get
cash by setting up a list of receipts.
Petty cash is only use for sundry expenses. For the larger expenditure, it
is required to issue the checks, pay by cash in bank, not pay by petty cash.


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This policy is due to the highly possibility of fraud from payment by
petty cash.
The billing document must be continuously numbered before use.
The receipt cash is required to record in time and completely, record at
that time it occurs to limit the misappropriation. Otherwise, cash should
be transferred immediately to the bank or cash fund.
At the end of the month, accountants shall compare the recorded data and
the actual data: compare the balance and occurred number on a ledger,
subsidiary ledger, reconciliation of cash accounts with actual cash
counted records. Ending balance of bank confirmation about the bank
account must match with ending balance of bank account on the ledger.

1.3.2.

Objectives and performance of internal control for cash items

Objectives of internal
control for cash receipts
Cash
in
transaction is
received

Performance of internal control

recorded
actually

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Receipt slips are reconciled
and signed
The received cash was fully
recorded in the cash book
and journals
Accurate
recorded

amount

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is

Segregation of duties between treasurer and
petty cash accountant.
Indepedent bank reconciliation.

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examining and reconciling the
document and sign the receipt slips

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using numbered bills or lists of receiving cash
accompanied with the regime of timely
receiving reports.
Confirming the checks directly

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original

Following details of receipts by subjects or
by types of transactions.
Regularly reconciling the bank account about


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Objectives of internal

control for cash receipts

Performance of internal control
the receipts.
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Receipts
amount
classified correctly

is

The amount is recorded on
time
Cash is recorded correctly
in the cash book, ledger
account

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Regulations on the update of receipts in the
cash book.

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Internal reconciliation

Objectives of internal

control for cash payments

Performance of internal control
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Each cash payments have
reasonable evidence

The amount of cash is
approved and recorded
accurately

Considering the specific relationship about
double entries.
Internal examine about classification,
especially special transaction.

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Segregation of duties between petty cash
accountant and person who sign the
payment slips.
Examining supporting document before
signing payment slips.

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Approving the payments when making
payment slips and supporting documents.

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Payment slips and other documents (checks,
payment orders) are numbered and followed
the order track
Prepare monthly bank reconciliation.

All transactions are
recorded
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Objectives of internal
control for cash payments
All payment transactions
are properly examine
Payments amount is
classified correctly
The amount is recorded
on time
Cash is recorded correctly
in the cash book, ledger
account

Performance of internal control
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Internal examination with the calculating

process of cash payments.
Reconciling with bank statement monthly.

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Having adequte account diagram.
Internal examination with classification
process.

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Regulations on the update of payments in
the cash book after making payment slips.
Internal examine.

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Internal examine

CHAPTER II: STEPS TO AUDIT CASH BALANCE
2.1. Audit Planning
2.1.1. Understanding about the client’s business and Industry
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Learn about the environment within the clients, auditors find out
information about the nature of the client as:
 Name of the company
 Contact information

 Accounting software
 License, and information related to operation activities.
 Number of employees
 Accounting standard and policies that company complies with.
Learn about the external environment, auditors find out information about
the characteristics of the industry that company involve in:


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Products and production line
Information about the market (target customers, main
competitors, market share,…)
 Property, plant and equipment
Learn about the client’s internal control and assess the general control
system
 Observation and inspection relating to client activities,
operations, documents, reports and premises.
 Learning the policy, regulation of clients, and checking the
documents and completed general ledger.
Preliminary analysis:
 Analyze in a general way about the indicators or items on the
financial statements, the indicators are used to analyze the direct
or indirect influence to the operating cost targets. Auditors
conducted on both types:
 Horizontal Analysis: auditors compare the amount of receipts
and payment of the previous period to the present period or
among the months in one period.
 Vertical Analysis: auditors compare the percentage of each
receipts and payment in the present period over the previous year.

 Through the analysis the auditor can see abnormal fluctuations
between the months of the year, the middle of this year compared
to last year, budgeted versus actual result.
Otherwise, assessing the possibility of going concern assumption is also
one of the important goals affect the completeness, effectiveness for audit
cash items. There are some factors that affect the going concern
assessment as follow:
 Financial symptom about bad situation or not
 Signals about operating activities (retirement, market share,…)
 Other signal related to compliance with regulations and policies.
Materiality assessment: the level of materiality is assessed for the whole
overall financial statement and then allocates it for each item. When
performing allocation of materiality for cash items will help auditors
determine the number of appropriate audit evidence should be collected.
Determination of materiality requires the auditor to consider both the size
and nature of the items for each specific customer.
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For example, for new business without revenue, material levels
of cash may be determined to be from 0.5% to 1% of total assets.
Because the operating activities are unstable, the initial
investment is for non-current asset (especially property, plant and
equipment) while the cash receipt is not high.
Materiality level is determined from minimum to maximum, the
level of materiality of cash to be determined, then the auditors
estimate and compare the discrepancy. If discrepancy is smaller
than initial estimate of materiality, the financial statements will
be considered honest and reasonable. Conversely, if the sum is
greater than the maximum value, the financial statements are not
considered realistic and reasonable.

2.1.2. Assessing the client risk affecting cash
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The cash balance is not material on many audits, but cash transactions
affecting the balance are almost always extremely material. Therefore, the
potential often exist for material misstatement of cash. Because cash is
more susceptible to theft than other assets, there is high inherent risk for
existence, completeness, and accuracy objectives. These objectives are
usually the focus in auditing cash balances.
Internal controls over year-end cash balances in the cash account can be

divided in two categories:

Controls over the transaction cycles affecting the recording of
cash receipts and disbursements.
 Independent bank reconciliation.
If controls affecting cash-related transactions are operating effectively,
control risk is reduced as are the audit test for the year-end bank
reconciliation. A monthly bank reconciliation of bank account on a timely
basis by someone independent of the handling or recording cash receipts
and disbursements is an essential control over the ending cash balance. If
a business defers preparing bank reconciliations for long periods, the
value of the control is reduced and may effect the auditor’s assessment of
control risk of cash. The reconciliation ensures that the accounting
records reflect the same cash balance as the actual amount of cash in the


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bank after considering reconciling items. More important, the
independent reconciliations provide an opportunity for an internal
verification of cash receipts and disbursements transactions.
Based on auditors’ comprehension to identify risks that may result in
material misstatements in the financial statements.
 The level of risk on the overall review of financial statements
 Risks to the assertion of a group of transactions, account balances and
financial statement presentation (especially the assertion are involved)
 The level of probable mistakes in the assertion / scope of ability to
influence

 Significant risk (affecting the audit) or related fraud
 The risk if the substantive procedures are only applied

2.2. Design and perform audit program
2.2.1. Design and perform Test of control:
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Using specific controls as a basis for reducing assessed control risk,
however, specific evidence must be obtained about their operating
effectiveness throughout all, or at least most, of the period under audit. The
procedures to test effectiveness of controls in support of a reduced assessed
control risk are called tests of controls. Designing tests of controls involves
the following:
Nature of tests: As to the nature of tests of controls, the auditor’s has the
following choices
 Inquiring: Inquiring is designed to determine (1) an employee’s
understanding of his/her duties, (2) the individual’s performance of
those duties, and (3) the frequency, indicate improper application of
a control.
 Observing: Observing the employee’s performance provides similar
evidence.
 Inspecting: Inspecting documents and records are applicable when
there is a transaction trail of performance in the form of signatures
and validation stamps that indicate whether the control was
performed and the individual who performed.


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Re performing: Re performing a control by the auditor provides the
best evidence of its effectiveness.
Timing of tests: The timing of the test of controls refers to when they are
performed and the part of the accounting period to which they relate.
Additional test of control are performed during interim work, which may
be several months before the end of the year under audit.
Extent of tests: The extent of tests of controls is directly affected by the
auditor’s planned assessed level of control risk. More extensive tests of
controls will ordinarily provide more evidence of the operating
effectiveness of a control policy or procedure than less extensive tests.
More extensive testing will be needed for a low assessed level of control
risk than for a moderate assessed level of control risk.
For each customer, based on professional judgment, Auditors will choose
to follow different methods to collect evidence. For example, they can:
 Choose a sampling to examine from the documents to general
ledger, or vice versa to test the actual operation activities.
 Observe employees to ensure the actual works, duties.( related to
operating cost and administration cost)
 Interview employee and employer directly or indirectly through
questionnaires.
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2.2.2. Design and perform substantive test

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Analytical procedures: The purpose of applying analytical procedures in
planning the audit is to assist in planning the nature, timing, and extent of
auditing procedures that will be used to obtain audit evidence for specific
account balances or classes of transactions. To accomplish this, the
analytical procedures used in planning the audit should focus on (a)
enhancing the auditor's understanding of the client's business and the
transactions and events that have occurred since the last audit date, and (b)
identifying areas that may represent specific risks relevant to the audit.
Thus, the objective of the procedures is to identify such things as the
existence of unusual transactions and events, and amounts, ratios and
trends that might indicate matters that have financial statement and audit
planning ramifications


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Since cash does not have a predictable relationship with other financial
statement accounts because of its residual nature, therefore, the auditor’s use
of analytical procedures for auditing cash balances is limited to:

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(a) Compare with prior years’ cash balances and to budgeted
amount.
(b) Identify receipts of the next accounting period and investigate the
long outstanding checks, determine whether they should be reflected in

the balances at year end period.

The substantive procedures

Audit Objectives
1.
Occurrence
Existence

2.

Completeness

Substantive Procedures
/



Select samples of cash receipts from cash book
and trace to remittance advices, pay-in slips, and
bank statement.



Select samples of cash payments from cash book
and trace to payment vouchers (with supporting
documents) and bank statements.



Scan through the entries and trace all the unusual
items, like contra items, stopped payment items
and cancelled checks, to support documents and
authorization.



Trace a sample of remittance advices and pay-in
slip to cash receipt journal.



Trace a sample of payment vouchers (with
supporting documents) to cash book.

3.

Accuracy



Agree the total of cash receipts and payments to
general ledger.

4.

Valuation



Compare a sample of remittance advices with
amount in cash receipts recorded in the cash


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book.


Compare a sample of (cancelled) checks with
amounts in cash recorded in the cash book.

5.

Cut-off



Compare the dates for recording a sample of cash
transactions with the dates of cash deposited in
bank or checks sent.

6.

Classification



Examine a sample of cash receipts and payments
transactions for proper classification.

The substantive procedures for test of details of cash balances
Audit Objectives

Substantive Procedures

1.
Occurrence,
completeness
and
valuation



Agree balance on bank confirmation with bank
reconciliation and cash book.



Trade deposits in transits, outstanding checks
and other reconciling items to cut-off bank
statements.

2.

Accuracy



Check calculation of bank reconciliation and

agree with book balance on cash book and
general ledger.

3.

Cut-off



For cash receipts, observe cash count for the last
day of the year end and trace deposits to cash
receipts journal and cut-off banks statement.



For cash disbursement, record the last check
issued at the year end date and trace to cash
payments in the cash book; and trace outstanding
checks on bank reconciliation and investigate any


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check clearing after a long delay.
4.
Classification,
presentation
and
disclosure



Review board of directors’ minutes, bank letter,
loan agreement or other documents for any
restrictions on cash.



Ensure bank loans and overdrafts are not offset
against positive bank balances in the financial
statements.

2.3. Complete the audit and prepare the audit’s report
2.3.1. Review the events occurring after the balance sheet date
'Events after the reporting period' are those events, favorable and unfavorable,
that occur between the balance sheet date and the date when the financial
statements are authorized for issue. There are two types of events:
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Adjusting events:
 An event after the reporting period that provides further evidence of
conditions that existed at the end of the reporting period, including
an event that indicates that the going concern assumption in relation
to the whole or part of the enterprise is not appropriate. These events
affect client’s accounting estimates and are on the books (but not
confirmed) as of the balance sheet date.
 If the confirming event (such as the bankruptcy) occurs after the
balance sheet date, and before the financial statements are finalized,

the client has to adjust its financial statements.
Non-adjusting event:
 An event after the reporting period that is indicative of a condition
that arose after the end of the reporting period. These events, also
called non-recognized events, aren’t on the books before the balance
sheet date and have no direct effect on the financial statements under
audit.


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

If these events are material, they have to be disclosed as footnotes in
the financial statements, but the financial statements don’t have to be
adjusted.

2.3.2. Assess going concern assumption
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Going concern is a basic underlying assumption in accounting. The
assumption is that a company or other entity will be able to continue
operating for a period of time that is sufficient to carry out its
commitments, obligations, objectives, and so on.
Regular auditing procedures that may identify conditions and events that
indicate a going concern problem include the following:
 Review of subsequent events – Subsequent events, such as the
bankruptcy of a major customer, confirm adverse conditions that
existed at the balance sheet date. Other subsequent events that

indicate a possible going concern problem include: (a) collapse of
the market price of the entity’s inventory; (b) withdrawal of line of
credit by bank; and (c) expropriation of entity’s assets.
 Reading of minutes: Minutes of meetings of stockholders, board of
directors, and board committees may indicate (a) potentially
expensive litigation; (b) loss of lines of credit; (c) loss of a major
supplier; and (d) changes in the operation of the business that could
result in significant losses.
 Inquiry of legal counsel: Responses to inquiries of the entity’s legal
counsel about litigation, claims, and assessments could indicate
possible significant losses because of product liability claims,
copyright or patent infringement, contract violations, and illegal
acts.

2.3.3. Assess the results
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Application of analytical procedures: The procedures assist auditor to
determine which department that need to collect more evidence to support
auditor’s opinion.
Assessing the sufficiency of Audit evidence: Auditors need to verify the
audit procedures to certain whether all of parts have been completed
properly and fully documented or not. Auditors also need to consider the
gathered evidences that are fully and reliably to be able to conclude that


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the client’s financial statements are true and fair based on Vietnamese
Accounting System.
General evaluation of the detected errors: During the implementation of
Audit procedures, the auditor may find errors in the client’s accounting
data. For material misstatement, auditors have made the right adjustments
during audit such term of those errors, while other misstatements have not
been adjusted. However, each misstatement may be immaterial, but
combining them together can lead to be material. Therefore, auditors need
to have integrated assessment for all unadjusted errors to consider that the
combination of errors is material or not when accumulating all of errors.

2.3.4. Review the audit record
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The review of audit records is usually done straight after the phase of
performing audit procedures. That review is conducted as follow:
 Senior auditor examines the audit record performed by associate
auditors
 Manager auditor examines the work of senior auditor and main part
of associate auditors.

2.3.5. Audit report
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Audit report is the last step in the process of auditing the financial
statement. It is important to note that auditor's reports on financial

statements are neither evaluations nor any other similar determination used
to evaluate entities in order to make a decision. The report is only an
opinion on whether the information presented is correct and free from
material misstatements, whereas all other determinations are left for the
user to decide.
There are four common types of auditor's reports, each one presenting a
different situation encountered during the auditor's work. The four reports
are as follows:
 Unqualified Opinion report: An Unqualified Opinion indicates the
following
o The Financial Statements have been prepared using the
Generally Accepted Accounting Principles which have been
consistently applied;


Audit Project
o The Financial Statements comply with relevant statutory

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requirements and regulations;
o There is adequate disclosure of all material matters relevant to
the proper presentation of the financial information subject to
statutory requirements, where applicable;
o Any changes in the accounting principles or in the method of
their application and the effects thereof have been properly

determined and disclosed in the Financial Statements.
Qualified Opinion report: Qualified report is given by the auditor in
either of these two cases:
o When the financial statements are materially misstated due to
misstatement in one particular account balance, class of
transaction or disclosure that does not have pervasive effect
on the financial statements.
o When the auditor is unable to obtain audit evidence regarding
particular account balance, class of transaction or disclosure
that does not have pervasive effect on the financial statements.
Adverse Opinion report: An Adverse Opinion Report is issued on the
financial statements of a company when the financial statements are
materially misstated and such misstatements have pervasive effect
on the financial statements.
Disclaimer of Opinion report: A Disclaimer of Opinion is issued in
either of the following cases:
o When the auditor is not independent or when there is conflict
of interest.
o When the limitation on scope is imposed by client, as a result
the auditor is unable to obtain sufficient appropriate audit
evidence.
o When there are significant uncertainties in the business of
client.


Audit Project

CHAPTER III: ASSESSMENT AND RECOMMENDATION
ABOUT THE INPLEMENTATION OF AUDIT IN
VIETNAM

3.1. Assessment
3.1.1. Advantages
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Firstly, each audit firm has been gradually improving scientific audit
process, which is based on the regulations and audit standards Vietnam.
Most of firms have meet the requirement based on integrated approach
about audit program by building and performing substantive procedure,
analytical procedure, and test of details in order to meet the objectives.
Secondly, before publishing the audit report, examination among auditors
is done by experienced and competent auditor to assure the completeness
and sufficiency of evidences and supporting documents. Furthermore,
crossing – checking also assist to reduce the errors during audit
complementation and the lack of auditors’ responsibilities.
Thirdly, by complying with the standard and policy of each firm, the audit
report is often brief, complete, closely argued, accurate and transparent.
According to that, auditor can give comment to clients to solve issues or
develop their control. Due to the objectivity and the rationality,
truthfulness, audit firms can get the belief and appointment of clients.

3.1.2. Disadvantages
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Firstly, relating to the audit planning: there are differences between the

audit for big and small clients. Actually, audit planning for big enterprises
is more complete and accurate in details. On the other hand, audit planning
for small company or familiar company is reduced in updating the business
line, identifying the accounting problem and risk due to saving money and
time. That can lead to the fraud and errors in some circumstances.
Secondly, relating to controlling the quality of audit: Audit season typically
lasts for 4 months from December to the end of March in Vietnam. In that
period, the audit firm often receive a lot of contracts in different places, so
the work of the auditors often are busy and stressful due to large workload


Audit Project

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must be completed in a limited time. Therefore, it is difficult to avoid the
errors.
Thirdly, Cash on hand – counting at the end of accounting period is
essential in the process of audit cash items, so in almost the job, an auditor
is needed to assign to observe directly the physical count of clients’
accountants. However, in the audit report, it is sometimes mentioned that
auditor do not join in the observation step.
Fourthly, under the policy of a number of firms, the sampling is
implemented by two methods: random sampling and sampling from special
section, in which special section may contain great amount of cash or the
amount exceed the cash quotation. Actually, choosing sample is depended
on auditors’ prediction and comprehension. Some of them always may
choose the transactions with larger amount of cash (receipts, disbursement,

of both), the remaining transaction is chosen randomly to reduce the
misstatements. The adverse result of choosing sample like above is high
sampling risk that the information from each sample is not represented for
population in some cases.

3.2. Recommendation to improve the audit process
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Relating to improve audit planning: In Vietnam recent condition, the policy
and legal framework are incomplete and useful enough to assist the audit
performance. The content and plan of audit is lack of consistency and limit
regulation about the quality of audit process. Thus, it is needed to pay
attention to prepare audit planning so well to avoid the illegal errors and
misstatement.
Using foreigner expert: In some necessary circumstances as audit for a big
corporation or foreign enterprises, it may have some lack of
comprehension about clients, industry and foreigner regulations, so it is
preferable if we engage to other organization or competent individuals to
have assistant on solving our limitation. For example, when audit for the
jewelry business which has the expensive and luxury stock, it is needed to
consider taking some external expert to valuate the cash equivalents and
products. However, increase of charge and inflexibility of time is necessary
to assess appropriately and match with contract’s value.