Luận văn kiểm toán khoản mục doanh thu khách sạn tại AAC (tiếng anh)

DANANG UNIVERSITY OF ECONOMICS
ACCOUNTING DEPARTMENT
----------

GRADUATION THESIS

AUDIT PROCEDURE ON SALES AND ACCOUNTS RECEIVABLE
FROM CUSTOMERS FOR HOTELS AND RESORTS COMPANIES
CONDUCTED BY AAC AUDITING AND ACCOUNTING LIMITED
LIABILITY COMPANY

Academic advisor:

Pham Hoai Huong, Ph.D

Student :

Nguyen Nha Truc

Class

39K18-CLC

:

Da Nang, December 2017


Graduation thesis

Academic advisor: Pham Hoai Huong,

Ph.D

Contents
INTRODUCTION................................................................................................1
CHAPTER 1: LITERATURE REVIEW ON AUDIT OF THE SALES AND
ACCOUNTS RECEIVABLE FROM CUSTOMERS...........................................2
1.1. Business functions and audit objectives in the sales and accounts
receivable from customers.................................................................................2
(Source: Gay & Simnett, 2010).........................................................................6
1.2. Accessing business risk and inherent risk for auditing sales and accounts
receivable from customers.................................................................................6
1.3. Understanding and documenting internal control of the sales and
collection cycle.................................................................................................7
1.4. Tests of controls of the sales and accounts receivable..............................10
1.4.1. Test of control of sales.......................................................................10
1.4.2. Test of control of related to accounts receivable................................11
1.5. Substantive tests of the sales and accounts receivable from customers....13
1.5.1. Substantive tests of the sales.............................................................13
1.5.2. Substantive tests of accounts receivable............................................17
1.6. Main characteristic of accounting sales and accounts receivable from
customers of hotels and resorts companies affecting audit procedures............20
CHAPTER 2: AUDIT PROCEDURE FOR SALES AND ACCOUNTS
RECEIVABLE FROM CUSTOMERS OF HOTELS AND RESORTS
COMPANIES CONDUCTED BY AAC AUDITING AND ACCOUNTING
LIMITED LIABILITY COMPANY...................................................................22
2.1. Overview about AAC Auditing and Accounting Limited Liability
Company (AAC).............................................................................................22
2.1.1. . Historical development of AAC Auditing and Accounting Limited
Liability Company.......................................................................................22
2.1.2. Company’s mission...........................................................................23

2.1.3. Types of services provided by AAC Auditing and Accounting Limited
Liability Company.......................................................................................23
2.1.4. Management organization structure and human resources in the
company......................................................................................................26
2.1.5. Overview of the process of financial statement audit conducted by
AAC Auditing and Accounting Limited Liability Company.......................28
Student: Nguyen Nha Truc- 39K18-CLC

1


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

2.1.6. Performing the audit..........................................................................29
2.1.7. Finishing the audit process................................................................30
2.2. Audit procedure for sales and accounts receivable from customers of
hotels and resorts companies conducted by AAC Auditing and Accounting
Limited Liability Company.............................................................................30
2.2.1. Performing initial audit planning.......................................................30
2.2.2. Audit planning for auditing sales and accounts receivable from
customers....................................................................................................35
2.2.3. Audit procedure for sales conducted by AAC....................................36
2.2.4. Audit program for accounts receivable from customers....................44
CHAPTER 3: SOLUTIONS TO IMPROVE AUDIT PROCEDURE FOR SALES
AND ACCOUNTS RECEIVABLE FROM CUSTOMERS FOR HOTELS AND
RESORTS COMPANIES CONDUCTED BY AAC...........................................49
3.1. Comment on audit procedure for sales and accounts receivable from

customers for hotels and resorts companies conducted by AAC.....................49
3.1.1. Positives in the audit procedure for sales and accounts receivable
from customers for hotels and resorts companies conducted by AAC.........49
3.1.2. Limitations in the audit procedure for sales and accounts receivable
from customers for hotels and resorts companies conducted by AAC.........49
3.2. Some solution for improving audit procedure for sales and accounts
receivable from customers for hotels and resorts companies conducted by
AAC................................................................................................................ 50
3.2.1. Analytical procedures........................................................................50
3.2.2. Performance materiality....................................................................51
3.2.3. Confirmation letters...........................................................................52
3.2.4. Existence of accounts receivable from solo travelers........................53
3.2.5. Sales cut-off test................................................................................53
3.2.6. Checking collaterals..........................................................................54
3.2.7. Test of control....................................................................................56
Appendix 1: Forms of confirmation letter..........................................................i
Appendix 2: Internal control over sales and accounts receivable‘s evaluation.iii
References.........................................................................................................v

Student: Nguyen Nha Truc- 39K18-CLC

2


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

INTRODUCTION

A revenue and collections cycle represents the business activities
associated with providing goods and services to customers and collecting their
payments. The revenue cycle processes should emphasize quick turnover of
customer payment to ensure a strong cash flow, but managers should also
separate duties to deter any chance of internal fraud and theft in revenue cycle.
The sales and accounts receivable from customers begins at the initial
purchase and continues through billing and payment receipt for every transaction.
Since this is the core of revenue bookings, it is needed to be sure accurate at all
times. Auditing the records from sales and collections regularly will ensure to
identify any procedural problems or potential errors right away.
The thesis based on the theoretical literature on auditing revenue and
accounts receivable from customers as well as auditing standards related to the
topic. Other specific in the research methods include: documentary study,
interview, comparison, analysis... to analyze and evaluate the financial statement
on auditing revenue and accounts receivable from customers at AAC, from which
suggestions would be given to improve the quality and effectiveness of audit for
sales and accounts receivable from customers process.

Student: Nguyen Nha Truc- 39K18-CLC

1


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

CHAPTER 1: LITERATURE REVIEW ON AUDIT OF THE SALES
AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

1.1. Business functions and audit objectives in the sales and
accounts receivable from customers
The overall objective in the audit of the sales and accounts receivable from
customers is to evaluate whether the account balances affected by the cycle are
fairly presented in accordance with accounting standards. The nature of the
accounts may vary, depending on the industry and client involved. There are
differences in the nature of a service company, a retail company, and an insurance
company, but the key concepts remain the same (Arens et al, 2012).
The audit objectives for sales and receivable relate to obtaining sufficient
appropriate evidence about each significant assertion for the applicable
transaction and balances. The main objectives would apply to most
merchandising entities (Leung et al, 2011).
While according to VAS 14, Revenue shall consist of only the total value
of economic benefits the enterprises have gained or will gain. Amounts collected
on behalf of third parties such as sales taxes, goods and services taxes and value
added taxes are not economic benefits which flow to the entity and do not result
in increases in equity. Therefore, they are excluded from revenue. Similarly, in an
agency relationship, the gross inflows of economic benefits include amounts
collected on behalf of the principal and which do not result in increases in equity
of the entity. The amounts collected on behalf of the principal are not revenue.
Instead, revenue is the amount of commission.
According to Arens et al, (2012) the sales and accounts receivable from
customers involves the decisions and processes necessary for the transfer of the
ownership of goods and services to customers after they are made available for
sale. It begins with a request by a customer and ends with the conversion of
goods or service into an account receivable, which refers to the outstanding
invoices a company has or the money the company is owed from its clients, and
ultimately into cash.
Table 1. Business functions and related documents

Business function
1. Processing customer order
2. Approving credit

Related documents
Customer order
Customer order

3. Shipping goods
4. Invoicing customers and recording
sales

Shipping document
Sales invoice
Sale journal
Monthly statement

Student: Nguyen Nha Truc- 39K18-CLC

2


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

5. Processing and recording cash
receipts
6. Processing and recording sale

returns and allowances
7. Writing off uncollectible accounts
receivable
8. Making provision for bad debts

Cash receipts journal
Sales returns and allowances journal
Uncollectible account
authorization form
General journal
General journal

(Source: Arens et al, 2012)

Processing customer order: Customer orders need to be checked for their
authenticity, the acceptability of terms and conditions, and the availability of the
inventory. Customer order is a request for merchandise by a customer. It may be
received by telephone, letter, a printed form that has been sent to prospective and
existing customers, through salespeople, electronic submission of the customer
order through the Internet, or other network linkage between the supplier and the
customer. Once accepted, the order is recorded on a sale order. Sale order is a
document for communicating the description, quantity, and related information
for goods ordered by a customer.
Approving credit: Before goods are shipped, a properly authorized person
must approve credit to the customer for sales on account or does so
electronically, following prescribed procedures. Weak practices in credit approval
often result in excessive bad debts and accounts receivable that may be
uncollectible. Credit approval is normally refused if the order would take the
balance over the customer’s credit limit or if the account is overdue.
Shipping goods: Most companies recognize sales when goods are shipped.

A shipping document is prepared at the time of shipment, which can be done
automatically by a computer, based on sales order information. The shipping
document is essential to the proper billing of shipments to customers. Companies
that maintain perpetual inventory records also update them based on shipping
records. Shipping document is prepared to initiate shipment of the goods,
indicating the description of the merchandise, the quantity shipped, and other
relevant data.
Invoicing customers function involves preparing and sending sales
invoices to customers. Sale invoice is a document or electronic record indicating
the description and quantity of goods sold the price, freight charges, insurance,
terms, and other relevant data. The most important aspects of invoicing are:
 Checking completeness: all shipments are invoiced to customers.
 Checking occurrence: only actual shipments are invoiced.
 Checking accuracy: Each one is invoiced for the proper amount

Student: Nguyen Nha Truc- 39K18-CLC

3


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

Recording sales function involves entering sale invoices in a sale journal,
posting the invoices to the account receivable subsidiary ledger, and posting the
sale journal total to the general ledger. The account receivable ledger balance is
periodically compared with the general ledger control account. Many companies
prepare monthly statement, a document sent by mail or electronically to each

customer indicating the beginning balance of their accounts receivable, the
amount and date of each sale, cash payments received, credit memos issued, and
the ending balance.
Processing and recording cash receipts includes receiving, depositing,
and recording cash. One risk is that cash is stolen before or after it is recorded.
All cash receipts must be deposited intact daily, ensure that only valid
transactions are entered. The daily cash summery is used to enter the cash
receipts journal, a listing or report is generated from the cash receipts
transaction file and includes all transactions for a time period.
Processing and recording sale returns and allowances: When a
customer is dissatisfied with the goods, the seller often accepts the return of the
goods or grants a reduction in the charges. The company prepares a receiving
report for returned goods and returns them to storage. Returns and allowances are
recorded in the sales returns and allowances transaction file, as well as the
accounts receivable master file. The journal used to record sales returns and
allowances is called sales returns and allowance journal. It performs the same
function as the sales journal. Many companies record these transactions in the
sales journal rather than in a separate journal.
Writing off uncollectible accounts receivable: Regardless of the
diligence of credit departments, some customers do not pay their bills. After
concluding that an amount cannot be collected, the company must write it off.
Typically, this occurs after a customer files for bankruptcy or the account is
turned over to a collection agency. Proper accounting requires an adjustment for
these uncollectible accounts. Uncollectible Account Authorization Form is
used internally to indicate authority to write an account receivable off as
uncollectible.
Because companies cannot expect to collect on 100% of their sales,
accounting principles require them to record bad debt expense for the amount
they do not expect to collect. Most companies record this transaction at the end
of each month or quarter.

According to Leung et al (2011), in the auditing of sales and receivable,
the key issues needed to be ensured are as below:
 The sales actually occur and are neither understated nor overstated
(related to the financial statement assertions of completeness and
occurrence, also accuracy and cut-off)

Student: Nguyen Nha Truc- 39K18-CLC

4


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

 The accounts receivable do actually exist and are collectable, and
allowances have been made for accounts receivable that have
became bad debts or are doubtful to about their collectability
(related to existence, valuation and allocation)
All the audit objectives related to sales and accounts receivable are
summarized in Table 2:
Table 2: Audit objectives for sales and accounts receivable

Audit Objectives

Related to sales

I.
Transaction objectives

1. Occurrence
Sales recorded in the
accounts represent the
goods shipped to
customers during the
period
2. Completeness
All goods shipped to
customers during the
period are recorded
3. Accuracy
All sale transactions are
accurately recorded
4. Cut-off
5. Classification

All invoices have been
recorded in the right
period
All sales are recorded in
the correct accounts.

II.
Balances objectives
1. Existence

2. Right and
obligations

3. Completeness

Student: Nguyen Nha Truc- 39K18-CLC

Related to accounts
receivable
Recorded accounts
receivable resulted from
sales to customers
All accounts receivable
from customers during
the period are recorded
All accounts receivable
are recorded with exact
amounts
All accounts receivable
have been recorded in the
right period
All accounts receivable
are recorded in the correct
accounts.
Accounts receivable
represents amounts owed
by customers at the end
of accounting period
Accounts receivable at
the end of accounting
period represents legal
claims of the entity on
customers for payment
All amounts owed by

customers are included in
accounts receivable at the
end of accounting period
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Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

4. Valuation and
allocation

Accounts receivable from
customers are identical to
the amount in subsidiary
ledger

III. Presentation and disclosure objectives
 Occurrence
Sales transactions and
events disclosed in the
financial statements have
occurred and related to
the entity.
 Completeness
All sales transactions that All accounts receivable
should have been
balances that should have

disclosed have been
been disclosed have been
disclosed in the financial disclosed in the financial
statements.
statements.
 Classification & Disclosed sales
Disclosed accounts
transactions have been
receivable balances have
Understandability
classified appropriately
been classified
and presented clearly in a appropriately and
manner that promotes the presented clearly in a
understandability of
manner that promotes the
information contained in
understandability of
the financial statements.
information contained in
the financial statements.
 Accuracy
& Sales transactions have
Accounts receivable
been disclosed accurately balances have been
Valuation
at their appropriate
disclosed accurately at
amounts.
their appropriate

amounts.
(Source: Gay & Simnett, 2010)

1.2. Accessing business risk and inherent risk for auditing
sales and accounts receivable from customers
The auditor uses knowledge gained from the understanding of the client’s
business and industry to assess client’s business risk, which makes the client l fail
to achieve its objectives. Client business risk can arise from any of the factors
affecting the client and its environment such as:
 A significant declines in the economy that threaten the client’s cash
flows;
 New technology eroding a client’s competitive advantage;

Student: Nguyen Nha Truc- 39K18-CLC

6


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

 The new products and services are whether accepted in the market or
not,
 The estimated demand associated with the expansion has not been
accurately estimated;
 Loss of financing because of inability to meet debt covenant
requirements;
The inclusion of inherent risk in the audit risk model is one of the most

important concepts in auditing. It implies that auditors should attempt to predict
where misstatements are most and least likely in the financial statement
segments. This information affects the amount of evidence that the auditor needs
to accumulate, the assignment of staff and the review of audit documentation.
(Arens et al, 2012)
According to Jubb et al, 2012, sales transactions are routine for many
organizations and do not pose a high risk. Revenue should be recognized only
when it is realized or is realizable and earned. Some difficult audit issues are as
below:
 The point in time when revenue should be recorded
 The impact of unusual terms, and whether title has passed to the
customers
 All goods recorded as sales have been shipped and were new goods
 The proper treatment of sales transactions made with recourse or
that have an abnormal or unpredictable amount of returns.
The primary risk associated with the receivable is that the net amount is
not collectible. If valid sales transactions does not exist, a valid accounts
receivable does not exist. Some of the risks affecting receivable are as below:
 Sales of receivables made with recourse and recorded as sales
transaction rather than financing transactions
 Receivables pledged as collateral against specific loans with
restricted use. Disclosures of such restrictions are required.
 Collection of a receivable contingent on specific events that can not
currently be estimated.
 Payment is not required until the purchaser sells the product to its
end customers.
Once the auditors have obtained an understanding of the risk
misstatement, the auditors need to understand the controls that the client has in
place to address those risks (Jubb et al, 2012)

Student: Nguyen Nha Truc- 39K18-CLC

7


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

1.3. Understanding and documenting internal control of the
sales and collection cycle
The level of understanding internal control and extent of testing required
for the audit of internal control exceeds what is required for an audit of only the
financial statements. Therefore, when auditors first focus on the understanding
and testing of internal control for the audit of internal controls, they will have
met the requirements for assessing internal control for the financial statement
audit.
Understanding the entity’s internal control system means that the auditors
have to evaluate the design of the control systems, whether the controls are
effective or not. Audit procedure is to obtaining evidences about control system
by using these method: observing the entity activities and operations, making
inquiries of key management personnel, inspecting entity documents to the extent
the entity has documented relevant policies and procedures . Management must
document the design of controls, including all five control components, and also
the results of its testing and evaluation. The types of information gathered by
management to assess and document internal control effectiveness can take many
forms, including policy manuals, flowcharts, narratives, documents,
questionnaires, and other paper and electronic forms.(Aren et al, 2012)
Gay and Simnett (2010) have shown a narrative of a typical credit sale as

below:

Student: Nguyen Nha Truc- 39K18-CLC

8


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

Student: Nguyen Nha Truc- 39K18-CLC

9


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

Based on the understanding of the risks in the revenue cycle, the auditors
obtain understandings the following key controls for testing: (Jubb et al, 2012)





Credit authorization and consistency of credit sales;

Access to the computerized price list for goods sold;
Accuracy of quantities and prices for items shipped and billed
Daily reconciliation of items shipped and items billed,

After gaining an understanding of the company's controls, the auditor
makes a preliminary assessment of the effectiveness of internal controls as a
basis for assessing control. This preliminary assessment, which is based on the
auditor's understanding of the design of the controls, is important because it
drives the planning for the rest of the audit. If the control risk is assessed as high,
the auditor cannot plan on relying on the controls to reduce substantive tests of
account balances. Therefore, the auditor will not perform tests of controls;
instead, the auditor must plan for substantive testing of account balances so that
no reliance is placed on the client's internal controls. The lower assessed level of
control risk approach will only be adopted where it is expected that the cost of
the more extensive procedures necessary to obtain the required understanding of
the internal control and test of controls will be more than offset by reduced costs
from performing less extensive substantive procedures.
1.4. Tests of controls of the sales and accounts receivable
Based on auditors’ understanding of the entity’s internal control system,
they have to consider the most efficient audit strategy. If the auditors plan to
access control risk as less than high, they will need to identify specific control
procedures and perform tests of controls for those control activities.
1.4.1. Test of control of sales
 Sales recorded in the accounts represent the good shipped to customer
during the period
The auditors test the effectiveness of internal control over the checking
credit for each customer by selecting a sample of invoice number from journal
and trace to duplicate sale invoices, shipping documents and customer orders.
To make sure that the accountants are independent of the warehouse staffs
to filling the sale orders, the auditors have to compare the amount in invoices

with amount in the shipping documents.
Every month, the companies send monthly statement to the customers so
the auditors have to observe mailing and follow-up procedures of customer
complaints.
 All goods shipped to customers during the period are recorded

Student: Nguyen Nha Truc- 39K18-CLC

10


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

The auditors examine the completeness objectives by checking whether
the shipping documents are numbered before being recorded in the journal or
not; checking process of numbering shipping documents and recording in the
journal. Another test is to check that the number column in the sale journal is
numerically or not.
One more potential misstatement is that unauthorized shipment may be
made. The possible test for this misstatement is observing segregation duties and
inspects dispatch notes for each shipment.
 All sale transactions are accurately recorded
For sales invoices processed in batches, examining evidence of an
independent check on the agreement of total for sales journal entries and amounts
posted to customer accounts with batch total.
For writing off bad debts, checking the authorized people’s agreement by
examining the uncollectible account authorization form and taking one copy as

the evidence
 All invoices have been recorded in the right period
The test of control for this objective is to obtain the number of the last
goods dispatch note for the final one of the year, select a sample before this
number and agree to sales invoices dated in the current period and entries in sales
journal before the period end.
The auditors obtain the number of the first goods dispatch note, select a
sample after this number and agree to sales invoices dated in the next period and
entries in sales journal until the following period.
 All sales are recorded in the correct accounts.
The auditors check how the companies use related accounts to record sales
transactions; check the authorized agreement to make sure of account
classification objective.
1.4.2. Test of control of related to accounts receivable
 Record accounts receivable resulted from sales to customers
In order to test the effectiveness of the control over occurrence objective,
the auditors select a sample from the receipt journal, trace to the cash received
documents, and check whether the receipt vouchers are attached to the related
sales invoices.
 All accounts receivable from customers during the period are
recorded

Student: Nguyen Nha Truc- 39K18-CLC

11


Graduation thesis

Academic advisor: Pham Hoai Huong,

Ph.D

The auditors select a sample from accounts receivable subsidiary leger,
trace to the sale journal, and check whether the receipt accounts receivable is
fully recorded or not
 All accounts receivable are recorded with exact amounts
The internal control system for this objective has to prevent the risk that
the cashier and the accountant are the same person, or have relationship with
each other. The auditors have to observe that cash handling is independent of
accounting, inspect posting for indication of supervisory review and approval.
For the tests of authorization, the auditor can pick up a sample from invoices for
discount, check the authorization and trace to accounts receivable subsidiary
ledger. The auditors also have to examine the entity’s bank reconciliations for
evidence of approval and re-perform one or a few reconciliations.
 All accounts receivable have been recorded in the right period
To audit this objective, the auditors tend to do more substantive tests than
to do tests of control
 All accounts receivable are recorded in the correct accounts.
The test of control for classification assertion examines the evidence that
independent check the authorized agreements on accounts receivable and how
the companies use related accounts to record accounts receivable.
 Allowances for impairment of receivables
The auditors should understand how management developed the estimate
and the controls over management ‘s estimation process. Auditors use one or a
combination of the following approaches to evaluate the reasonable of the
estimate: review and test the process used by management to develop the
estimate; develop an independent model to estimate the accounts and update the
model each year based on past experience and current economics conditions;
review subsequent events or transactions occurring prior to completion of
fieldwork, particularly subsequent collections. The auditors should ask

management about the collectability of customer balances that have not yet been
collected in the subsequent period, particularly those that are larger and long
overdue.
When unable to pay an open account when due, a customer may be asked
to sign a note receivable requiring payment within a specified period, with
interest. The auditors can examine or confirm note receivable to check the
process of write-off bad debts.
 All cash received from customers is recorded
The company should have the control over the completeness objective by
making the rules that every receipt voucher has been numbered before being
recorded, the cashier has to put cash in the bank daily…..While doing tests of
Student: Nguyen Nha Truc- 39K18-CLC

12


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

control, the auditors have to examine the effectiveness of those policies by
selecting a sample of receipt vouchers and then tracing to cash receipts journal.
Some more tests for this objective are: checking the evidence that numerical
sequence account for receipt vouchers, observing preparation of deposits. To
make sure that every policy about cash is followed, the auditors can interview the
cashiers about how they handle the cash and then check the evidence of daily
deposit in bank.
After obtaining an understanding of the entity’s internal control system and
also collecting evidences from tests of control, the auditors can make a final

judgment about control risk. The tests of control do not directly measure
monetary error in accounting records, which is the reason why the auditors have
to perform the substantive tests to detect financial statement, material
misstatement (Leung et al, 2011).
1.5. Substantive tests of the sales and accounts receivable from
customers
In order to design the substantive procedures for sales and accounts
receivable from customers, the auditors must decide the acceptable level of
detection risk for each assertion (Leung et al, 2011). The objective of doing
substantive tests is gathering more evidences to make the audit opinion.
Substantive tests of details can be divided into two types: substantive tests of
transaction and substantive tests of balance. The auditors examine underlying
documents and then through the system, trace the flow of transactions while
doing substantive tests of transactions. About the substantive tests of balances,
the auditor’s only design the procedures of this type directed a few items such as
accounts receivable or inventory. If the balances result from the numerous
transactions, the auditors normally prefer to do substantive tests of balances to
substantive tests of transactions because the transactions result in recorded
balance at the end of accounting period.
1.5.1. Substantive tests of the sales
The first thing the auditors do before apply substantive tests of sales
transactions is to obtain clearly understanding of how the entity records theirs
revenues. The auditors have to ensure that every policy of accounting revenue is
established according to Accounting Standards and those policies are applied to
treat every revenue recognition‘s transaction.
1.5.1.1. Substantive analytical procedures
This step identifies the absolute changes in amounts between current
period and previous periods. There are also some financial ratios need to be
calculated such as gross profit ratio, revenue growth.

Student: Nguyen Nha Truc- 39K18-CLC

13


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D


Gross profit ratio represent the relationship between sales and cost
of goods sold. The auditors review through the cost of goods sold
component of audit client to critically review the reasonableness of the
cost of goods sold. If there is a great increase in this ratio, it means that
the increase proportion of sales is much higher than the increase
proportion of cost of goods sold. A great increase in gross profit ratio can
relate to the risk of financial misstatement of overstated sales. In order to
check sales being overstated or not, the auditors can conduct the tests to
test the occurrence of sales transaction. On the contrary, the decrease of
this ratio can relate to the risk of understated sales. In this case, the
auditors have to conduct the tests of completeness assertion.


Revenue growth is an increase of a company's sales when
compared to a previous revenue performance. Revenue growth illustrates
sales increases/ decreases over time. It is used to measure how fast a
business is expanding. A great increase in revenue growth rate can relate
to the risk of financial misstatement of overstated revenue. After
comparing the figure the current period with the previous period, the

auditors can also compare the company growth rate with the industry
average growth rate to check whether revenue increase is reasonable with
the industry norm or it is overstated.
 The auditors collect the amount of monthly revenue, then check
whether any month revenue is much higher or much lower than the
other one. the auditors have to examine the reason for this
difference, whether it comes from the change in management sale’s
policies or sale is overstated.
 Another tests is that the auditors compare the proportion of monthly
revenue in the current period with the figure in the previous period.
If there is a great change in the proportion of monthly revenue, the
auditors need to figure out the reason. The reason can be the change
in management sale’s policies or it can be a fraud.
Wherever a change in relationships can not be explained, the auditors must seek
an explanation from management and corroborate that explanation, usually by
performing more tests of details (Leung et al, 2011).
1.5.1.2. Substantive tests on sales transactions
 Occurrence assertion: Sales recorded in the accounts represent
the goods shipped to customers during the period

Student: Nguyen Nha Truc- 39K18-CLC

14


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

According to Aren et al, 2012, for this objective, the auditor is concerned
with the possibility of three types of misstatements:


Sales included in the journals for which no shipment was made:
The auditor can vouch selected entries in the sales journal to related
copies of shipping and other supporting documents to make sure they
occurred. If the auditor is concerned about the possibility of a
fictitious duplicate copy of a shipping document, it may be necessary
to trace the amounts to the perpetual inventory records as a test of
whether inventory was reduced. The auditor can also test for the
proper cancellation of shipping documents. Proper cancellation
decreases the likelihood that a shipping document will be used to
record another sale.

Sales recorded more than once: Duplicate sales can be determined
by reviewing a numerically sorted list of recorded sales transactions
for duplicate numbers.

Shipments made to nonexistent customers and recorded as sales:
This type of fraud normally occurs only when the person recording
sales is also in a position to authorize shipments. Deficient internal
controls make it difficult to detect fictitious shipments, such as
shipments to other locations of the company. To test for nonexistent
customers, the auditor can trace customer information on the sales
invoice to the customer master file
 Completeness assertion: all sales and events that should have been
recorded have been recorded


The transactions test that is related to completeness is tracing from
shipping documents to sales journal. The auditors can also use audit software to
look for gaps in the recorded sales invoice numbers and verify that the missing
numbers are appropriate and do not present unrecorded sales (Christine Jubb et
al, 2012).
In many audits, no substantive tests of transactions are done for the
completeness objective. This is because overstatements of assets and income
from sales transactions are more likely than understatements, and
overstatements also represent a greater source of audit risk. If controls are
inadequate, which is likely if the client does no independent internal tracing
from shipping documents to the sales journal, substantive tests are necessary.
To test for unbilled shipments, auditors can trace selected shipping documents
from a file in the shipping department to related duplicate sales invoices and
the sales journal. To conduct a meaningful test using this procedure, the auditor
must be confident that all shipping documents are included in the file. This can
be done by accounting for a numerical sequence of the documents.

Student: Nguyen Nha Truc- 39K18-CLC

15


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

 Accuracy assertion: all sale transactions are accurately recorded
If the revenue of the entity comes from sales of goods, the auditors should
compare the quantities of goods in invoice and shipping documents with the

customer order; compare the prices in invoices and the valid price list of the
entity, sales contracts, discounts and allowances policies for customer; check the
calculation in invoices. If the entity has sales transactions using foreign currency,
the auditors check on the exchange rates the entity used to record revenue.
If the entity’s revenue comes from providing services, the auditor have to
interview the chief accountant about the accounting method, then consider
whether the entity’s revenue recognition policies follow current accounting
standards or not. If the entity’s policies are follow the current accounting
standards and consistent through many accounting periods, the auditors check
the calculation in invoices.
 Cut-off: sales transactions are recorded in the right accounting period
According to Christine Jubb et al (2012), the greatest risk of recording sales
transaction is recording in the wrong period. The cut-off tests are the procedures
applied to sales, sales returns and cash collection transactions selected during the
cut-off period. The cut-off period is several days before and after the balance
sheet date. Sales cut-off can be tested in two ways:
 First, selecting a sample of sales transactions in cut-off period,
examining whether the sales were recorded in correct period by
checking shipping terms and shipment date; examining sales
contracts to find any existence of terms that might indicate the
recording of sales should be postponed, for example, the customers’
right of return, the existence of additional performance by seller,
the probability of collection based on some future events or the
existence of an unusually low probability of collection
 Second, if reliable shipping dates are stored electronically,
generalized audit software can be used to identify any sales
recorded in the wrong period.
 Classification assertion: all sales are recorded in the correct accounts
Although it is less of a problem in sales than in some transaction cycles,
auditors must still be concerned that transactions are charged to the correct

general ledger account. With cash and credit sales, company personnel should not
debit accounts receivable for a cash sale or credit sales for collection of a
receivable. They should also not classify sales of operating assets, such as
buildings, as sales. For those companies using more than one sales classification,
such as companies issuing segmented earnings statements, proper classification
is essential. Auditors commonly test sales for proper classification as part of
testing for accuracy. These tests examine supporting documents to determine the
proper classification of a given transaction and compare this with the actual
Student: Nguyen Nha Truc- 39K18-CLC

16


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

account to which it is charged the substantive test for this assertion is checking
whether sales recorded correctly in accordance with the chart of account. In case
that the entity’s revenue coming from many different principle activities with
different tax policies, the auditors have to examine how the entity record revenue
for each business line.(Arens et al 2012)
 Sales transactions are correctly included in the master file and
correctly summarized
The proper inclusion of all sales transactions in the accounts receivable
master file is essential because the accuracy of these records affects the client’s
ability to collect outstanding receivables. Similarly, the sales journal must be
correctly totaled and posted to the general ledger if the financial statements are to
be correct. In most engagements, auditors perform some clerical accuracy tests,

such as footing the journals and tracing the totals and details to the general ledger
and the master file, to check whether there are errors or fraud in the processing of
sales transactions. The extent to which such tests are needed is determined by the
quality of internal controls. Generalized audit software allows for efficient testing
of the accuracy of electronic journals and records.
Tracing from the sales journal to the master file is typically done as a part
of fulfilling other transaction-related audit objectives, but footing the sales
journal and tracing the totals to the general ledger are done as separate
procedures. Posting and summarization tests differ from those for other
transaction-related audit objectives because they include footing journals, master
file records, and ledgers, and tracing from one to the other among these three.
When footing and comparisons are restricted to these three records, the
transaction related audit objective is posting and summarization. When the
journals, master files, or ledgers are traced to or from a document, the objective
is one of the other five objectives, depending on what is being verified. (Arens et
al 2012)
1.5.2. Substantive tests of accounts receivable
Accounts receivable is a balance sheet asset and is created through credit
sales transactions. Through the audit of credit sales, the auditors can generally
examine whether the accounts receivable have been recorded properly. Accounts
receivable is an asset, so the auditors have to make sure that it does actually exist
and that is collectible. Below is the procedure of substantive tests of accounts
receivable:
1.5.2.1. Substantive analytical procedures:
The result of initial and analytical procedure is very important to set up the
following substantive tests. In auditing accounts receivable, the auditors first
check the accounts receivable on Trial balance and then compare with the
detailed accounts receivable. After that, the auditors consider the balances of
Student: Nguyen Nha Truc- 39K18-CLC

17


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

accounts receivable subsidiary ledger with the balances in Trial balance, general
ledger and the account balance. Then, the auditors calculate some financial
ratios:
 Gross margin ratio related to the Substantive analytical on Sales

Accounts receivable turnover is an efficiency ratio that measures how
many times a business can turn its accounts receivable into cash during a period.
This ratio shows how efficient a company is at collecting its credit sales from
customers. Higher ratios mean that companies are collecting their receivables
more frequently throughout the year, lower ratios can relate to understated
average accounts receivable balance. About the influence of annual credit sales to
this ratio, if there is a recorded fictitious credit sale, it could also lead to the
increase of this ratio because annual credit sale is the ending figure and the
denominator is the average balance item.

Bad debts ratio is a reporting tool which allow the auditors to check credit
management performance regarding losses due to unpaid invoices. Percentage
of bad debt should be compare between current year and previous years. If a
company's percentage of bad debt increases rapidly, the reasons can be the
over estimated bad debt of the management. On the contract, the company
can under estimated bad debt in the current period.
1.5.2.2. Substantive tests on accounts receivable

 Existence assertion: Accounts receivable in the financial statement
exist at balance date
Most of the audit effort on receivables is obtained through the
confirmation of accounts receivable. In order to test the assertion of existence,
the auditors select from accounts receivable balances and obtain evidences to
support them. The auditors undertake debt confirmation procedures and review
the subsequent receipts.
 Right and obligations: Accounts receivable at the end of accounting
period represent legal claims of the entity on customers for payment
In design substantive test for this the assertion of rights and obligations,
the auditors have to make sure that all the accounts receivable belongs to the
entity. The best way to test this objective is to obtain the external confirmation,
by obtaining a direct written from a third party. There are two methods of
requesting an external confirmation: Opened and Closed, the closed confirmation
letter is divided into positive and negative form. Positive form of confirmation
requires debtors to respond whether agree or not with the amount owed in the
Student: Nguyen Nha Truc- 39K18-CLC

18


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

request. The negative form which requires the debtor to respond only when the
amount in the request in incorrect. According to VSA 505, the auditor may use
open or closed external confirmation requests or a combination of both forms.
The two forms are shown in the appendix 1

An opened external confirmation request asks the respondent to reply to
the auditor in all cases by filling in the blank for the amount needed to be
confirmed. A response to an open confirmation request is ordinarily expected to
provide reliable audit evidence.
A positive external confirmation request asks the respondent to reply to
the auditor in all cases either by indicating the respondent’s agreement with the
given information, or by asking the respondent to fill in information. There is a
risk; however, that a respondent may reply to the confirmation request without
verifying that the information is correct. The auditor is not ordinarily able to
detect whether this has occurred. The auditor may reduce this risk, however, by
using open confirmation requests that do not state the amount (or other
information) on the confirmation request, but ask the respondent to fill in the
amount or furnish other information. On the other hand, use of this type of open
confirmation request may result in lower response rates because additional effort
is required of the respondents. (VSA 505)
A negative external confirmation request asks the respondent to reply only
in the event of disagreement with the information provided in the request.
However, when no response has been received to a closed confirmation request,
the auditor remains aware that there will be no explicit audit evidence that
intended third parties have received the confirmation requests and verified that
the information contained therein is correct. Accordingly, the use of negative
confirmation requests ordinarily provides less reliable audit evidence than the use
of positive confirmation requests, and the auditor considers performing other
substantive procedures to supplement the use of negative confirmations.
A combination of positive and negative external confirmations may be
used. For example, where the total accounts receivable balance comprises a small
number of large balances and a large number of small balances, the auditor may
decide that it is appropriate to confirm all or a sample of the large balances with
positive confirmation requests and a sample of the small balances using negative
confirmation requests.

 Completeness: All amounts receivable owed by customers are
included in accounts receivable at the end of accounting period
The auditors test the subsequence of receipts by verifying whether the
amount in receivables is subsequently received or not. The auditors focus on
examining the receivables after year end but before the end of audit process. This
can help the auditors obtain evidences of debts’ existence and whether the debts
can be collective or not (Gay & Simnett, 2010).
Student: Nguyen Nha Truc- 39K18-CLC

19


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

 Valuation: Bad debts are estimated reasonably.

The important test in this assertion is reviewing the aged
trial balance. The auditors usually collect a copy of detailed aged accounts
receivable from the entity (Gay & Simnett, 2010). This document presents
all the customers, outstanding balance for each customer with the age
category such as current, 6 months to under 1 year, more than 1 year to
under 2 years, more than 2 years to under 3 years, 3 years overdue
After collecting the aged trial balance, the auditors check how the entity
making provisions for bad debts. According to Circular no. 228/2009/TT-BTC on
December 7, 2009, the provisions for bad debts are calculated based on the
amount of accounts receivable as below:
 30% amount of unpaid accounts receivable from 6 months to under 1 year.

 50% amount of unpaid accounts receivable from more than 1 year to
under 2 years.
 70% amount of unpaid accounts receivable from more than 2 years to
under 3 years
 100% amount of unpaid accounts receivable from more than 3 years.
Generalized audit software can also be used to develop an aging summary
( Christine Jubb et al, 2012).
1.6. Main characteristic of accounting sales and accounts
receivable from customers of hotels and resorts companies affecting
audit procedures
The hotel and resort industry is also known as the hospitability service
sector. Hospitality industry is a board of category of the service industry also
including event planning, theme park, restaurant, lodging and also tourism
industry. A hospitality unit such as a restaurant, hotel, or even an amusement park
consists of many groups such as facility maintenance, direct operations
management, marketing, and human resources. Hospitality industry has many
characteristics such as intangible, perishable, inseparable, simultaneous, variable,
shift work, graveyard shift and guest satisfaction.(Hales, 2005)
Hotel revenue comes from many business lines such as room rental,
restaurant, bar food, beverage sales, vending machine sales, laundry services, and
communication sales. Each revenue activity can have individual tax rate, so it is
very important to identify the source of the revenue. The room rentals make up
the bulk of the revenue and accounting for room rental’s revenue can have some
risks. Recording revenue for room rental service is different from other business
line. The other business lines recording revenue based on the issued invoices but
recording room rental based on the dates on which the transactions actually
occur.

Student: Nguyen Nha Truc- 39K18-CLC

20


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

The first risk is accounting revenue in the wrong period. This risk relates to
the transactions occur between 2 consecutive accounting periods. It means that
the guests check-in before the end of the accounting period and check-out in the
next one, the invoices will be issued on the check-out date. For those
transactions, the entity has to identify the amount of revenue comes from
providing room service in the current period and the amount of next period. This
can lead to some frauds or errors of recording revenue in the wrong period. That
is the reason the auditors should enlarge the cut-off test for revenue of room
rental to identify the exact amount of current period.
Next is the risk of cash receipt. The daily functions of the General Cashier
are to collect, balance, and consolidate all of the operations department deposits
into one deposit for the hotel, which goes to the bank each day. The General
Cashier balances the cash and checks in each deposit to the same amounts posted
for that day in the income journal account. The credit card payments and direct
billing are not part of the hotel deposit until the actual checks are received.
Nowadays, many hotels have the policy of deposit cash daily to the bank. If the
auditors obtain this information, they have to examine the evidence of
conducting cash receipts policies.
Besides, there is the risk of inexistent amount of accounts receivable. At
the end of accounting period, the accounts receivable has credit balance related to
the advance payment of travel agencies. To check the existence of those balances,
the auditors can check the accounts receivable confirmation letter from the travel

agencies. With the debit balances of accounts receivable, they are related to the
guests who are staying in the hotel or resort at the current time. In order to check
the existence of those balances, the auditors can check the invoices issued in the
next period which relates to the current accounts receivable balances.
Specialized accounting software created for the hospitality industry will
help hotel management or accounting staff keep track of day-to-day finances, as
well as forecast for the future. These packages manage both individual and hotel
chain finances, including specific features such as general ledger for guest
charges and fees, accounts payable for staff and vendors, financial statistics and
statements for forecasting, and easy distribution for sharing with management.
The higher technology is applied, the harder it is for the auditors to trace audit
trails.

Student: Nguyen Nha Truc- 39K18-CLC

21


Graduation thesis

Academic advisor: Pham Hoai Huong,
Ph.D

CHAPTER 2: AUDIT PROCEDURE FOR SALES AND ACCOUNTS
RECEIVABLE FROM CUSTOMERS OF HOTELS AND RESORTS
COMPANIES
CONDUCTED
BY
AAC
AUDITING

AND
ACCOUNTING LIMITED LIABILITY COMPANY

2.1. Overview about AAC Auditing and Accounting
Limited Liability Company (AAC)

Company name: AAC Auditing and Accounting Ltd (AAC)
Head office :
Lot 78-80, 30 April Street, Danang City

Branch Office in HCM City
Hoang Dan Building (Floor 4)

Tel: 84 511 3655 886

47-49 Hoang Sa Street,

Fax: 84 511 3655 887

District 1, Ho Chi Minh City

Email:

Tel: 84 8 3910 2235

Website:

Fax: 84 8 3910 2349
Email:
Branch Office in Ha Noi

Viet A Building (Floor 6)
9 Duy Tan Street,
District Cau Giay, Ha Noi City
Tel: +84.2432242403; +84.2466666369
Fax: +84.2432242402
Email:

2.1.1. . Historical development of AAC Auditing and Accounting Limited
Liability Company
AAC previously named Auditing and Accounting Company attached to
the Ministry of Finance, incorporated in 1993, and restructured in 1995, is one of
the earliest audit firms established and operating in Vietnam.

Student: Nguyen Nha Truc- 39K18-CLC

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