Part 1.

INTRODUCTION

I. TRUONG THANH FURNITURE CORPORATION

1. Contact information

Name: TRUONG THANH FURNITURE INDUSTRIES CORPORATION

Trading name: TTF

Type of activity: Joint Stock Company

Tax code: 5700530696

Legal representative: Mai Huu Tin

License date: August 18, 2003

Date of operation: November 1, 2003

Head quarter: DT 747 Street, Quarter 7, Uyen Hung Ward, Tan Uyen Town, Binh Duong
Province

Tel: +84 274 3740690

Fax: +84 274 3740692

Website: www.truongthanh.com

2. General information

2.1. Scopes of business Manufacturing furniture mechanizing

Manufacturing plywood, flooring timbers

Mechanizing wooden products

Mechanizing wood-related accessories

Manufacturing package

Other industries under business lience.

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2.2. Business area

- Over 30 countries around the world including Europe (UK, France, Germany, Italy,
Spain ...), USA, Canada, Japan, Korea, Australia, South Africa, Russia…

- In Viet Nam including TP.HCM, Ha Noi, Tay Ninh, Binh Duong, Đa Lat, Dak Lak,
Dak Nong, Ben Tre, Dong Thap, Can Tho, An Giang, Kien Giang, Nha Trang, Binh
Dinh, Da Nang, Hue,…, including:

+ 06 Subsidiaries: Truong Thanh Furniture Corp. Joint Stock Company, Binh Duong

Truong Thanh Wood Joint Stock Company, DakLak

Green Truong Thanh Joint Stock Company, Phu Yen

Truong Thanh Agriculture Joint Stock Company, DakLak

Truong Thanh Forestry Joint Stock Company, Dak Nong

Truong Thanh Commerce, Import and Export Joint Stock Company,

Dak Nong

+ 13 Factories: 11 Factories in Binh Duong & 02 Factories in DakLak

2.3. Products

Interior Furniture, Exterior Furniture, Door, Floor, Sofa, Kitchen cabinets, Craft works,…

2.4. Vision

- Maintaining the leading position in the wood processing industry in Vietnam, becoming
the Top 50 manufacturers, traders and exporters of wood products with the largest sales
in the world from 2025;

- Maintaining a leading brand in supplying wood products in domestic market;

- Becoming the Top 3 private forest growers (with wood processing) with the largest
plantation forest area in ASEAN from 2025.

2.5. Mission

Bring "profit opportunities" to many wood importers, wholesalers and distributors around
the world, as well as agents and distribution linkages in Vietnam
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- Always increasing customer satisfaction according to the set criteria: competitive price,
on-time delivery, on-time quality, on-time innovation - creation and best service

- Bring to life wooden products that are beautiful, convenient and safe, making users feel
comfortable, happy and confident

- Developing production afforestation in Vietnam, contributing to environmental

protection and deforestation around the world, so that TTF in particular and the wood
processing industry in general can develop sustainably, in addition to contributing to
combating climate change - increasing the cleanliness of the biosphere

2.6. Partners

Vingroup, Sungroup, Tan Hoang Minh group, VTP group, BOHO Décor, Dongtam,
Ricons, Newtecons,…

3. Corporate History

1992: Wood Processing Workshop in EaH'leo - Dak Lak with 30 labors was estabished

2000: Transformed into Truong Thanh Furniture Limited Company

2003: Transformed into Truong Thanh Furniture Joint Stock Company

2007: Increasing its charter capital to 150 billion VND with a capital surplus of over 470
billion VND

2008: Listed and traded on Hochiminh Stock Exchange (HOSE)

2015: The company officially announced a successful financial restructuring, strongly

increased sales and the biggest profit ever.

2016: up to 980 billions VND of inventory value was evaporated.

2nd quarter of 2016 financial statements with a huge loss of trillions dong: 75% of
the charter capital.

Huge decrease in inventory compared to the beginning of the year: 520 billion
dong.

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II. DFK AUDITING

1. About DFK International

DFK International is a Top 10 international association of independent accounting firms

and business advisers. The association has been meeting the needs of clients with
interests in more than one country for over 50 years.

Each DFK member is an independent legal entity in its own country. A grouping of
members who include DFK in their firm’s name are classified as network firms in
accordance with EU and IFAC requirements.

The combined fee income of all the DFK Member Firms, including the members of DFK
National Groups, was over USD 1.3 billion in 2019.

Presently, the world-wide organisation has over 12,000 staff, having presented in 92
countries and providing various professional services throughout the world.

2. About DFK Vietnam

DFK Vietnam is one of a very limited number of accounting firms in Vietnam founded
by people who had worked for years for international leading accounting firms.

Presently, DFK Vietnam has almost 100 professionals and our position is in top 20
largest accounting firms in Vietnam.

A firm that serves international and large Vietnamese clients.

The Vietnamese member firm of DFK International.

A firm that is recognized in Vietnam.

Services: DFK Vietnam has experts on staff that provide a wide variety of services to the
most important industries in the country: audit, accounting, tax consulting, business
consulting, internal audit, transfer pricing service,…

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Part 2. Analysis the financial statements of Truong Thanh Furniture Corporation
(2016)

Brief information:

Back to 2005-2007 period, gross revenue and profit before tax of TTF always increased
more than 100%. This was because the material was mostly a kind of wood called Teak,
which had the value double the value of another kinds of wood. In 2006, the proportion
of using Taek was accounted for 33% and Lagarwood (30%) (export from Africa and
South America), Basswood and Sapele (15%), Pyinkado (9%) and so on.

When recognizing the demand of Teak exported increased for several years, the price was
always rose from 15 to 20% annually while the interest rate was only 9-10%, the
company decided to lend money in order to reserve.

However, because of the global financial crisis in 2008, the demand of wood changed
significantly. From 2009 to 2011, the percentage of Taek decreased from 23% to 5% due
to 60% demand using low valueable wood. Moreover, the market also changed. As a
result, TTF started to do everything to solve a huge amount of inventory and lead to the
horrible consequences in 2016.

Analysis:

In the first quarter of 2016, TTF announced a profit of 54 billion VND. However, in the
second quarter of fiscal year 2016, TTF's financial report unexpectedly posted a loss up
to 1.128 billion VND.

Table 1: 31/3/2016
2016 2015
Net profit after corporate income
54.798.682.276 26.065.438.779
tax
Table 2: 30/6/2016

2016 2015
Net profit after corporate income
(1.128.182.296.766) 106.811.715.829
tax

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According to Ernst&Young Vietnam, the loss was due to inventory loss of 980 billion
VND, which was missing when inventory was sold.

The first 6 months of 2016 The first 6 months of 2015

Cost of Goods Sold 669.693.567.881 1.118.395.175.623

Missing Inventory 979.888.526.439 -
Cost of Providing Services 3.178.666.763 11.789.275.907
Construction Cost 37.297.765.337 45.362.287.560
Provision for Devaluation 76.888.312 (341.881.759)
of Inventories
Total 1.690.135.414.732 1.175.204.857.331
In 2013-2014, the revenue of TTF declined a half. Noticable, in the situation which had
revenue decrease and interest burden, the inventory of TTF continued increasing.

Inventory of TTF Closing Opening

2007 767.686.233.518 329.686.233.518
2008 841.549.753.349 767.686.233.518
2009 984.136.017.103 841.549.753.349
2010 1.351.591.162.196 1.207.080.874.257
2011 1.665.903.931.727 1.351.376.804.807
2012 1.955.594.369.039 1.668.221.063.420
2013 2.245.347.148.559 1.955.594.369.039
2014 2.365.243.674.783 2.245.347.148.559
2015 2.296.856.163.607 2.210.607.460.377

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Account balance difference of inventory in opening balance and closing balance:

If we look through the fluctuation of TTF’s inventory, we can realize an abnormal point:
there are 2 financial statements audit (2010 and 2015) which closing balance in the
previous year was different from openning balance in the next year. To be in detail, the
opening balance of inventory in 2010 increased 223 billion VND compared to the closing
balance in 2009 or the opening balance of inventory in 2015 decreased 150 billion VND
compared to the closing balance in 2014.

The provision for bad receivable debts and the missing inventory caused the company to
suffer heavy losses. This finding had led E&Y to directly adjust to TTF's cost of goods
sold in quarter 2/2016, increased to 1.690 bilion VND, which was nearly double the
revenue. At the same time, inventory at 30/6/2016 was only 1.777 billion VND, which
declined 510 billion VND compared with the figure for the beginning of the year.

The first 6 months of

The first 6 months of 2016
2015
Total Cost of Goods Sold 1.690.135.414.732 1.175.204.857.331
Total Revenue from GS&SR 883.638.692.098 1.348.276.848.511
Inventory 1.777.036.853.625 2.297.561.529.207
Additionally, liability was high, about 2.300 billion VND per year in 2013-2015 period
and increased to 3.057 billion VND in the first six months of 2016, in which 90% came
from short-term liability.

Some indicators in comparison between the first 6 months of 2016 and 2015
(billion VND)
3,500 3057 2981
3,000 2,819 2,745
2,500 2,297
2,000 1690 1777
1,500 1,175 1,348
1,000 883
500
0 COGS Revenue Inventory Liability Short-term Liability

2016 Column1

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 The first 6 months 2016 The first 6 months 2015
Liability 3.057.045.283.992 2.819.418.907.729
Short-term Liability 2.981.401.215.619 2.745.052.235.331
Financial data at the end of the previous year (31/12/2015) was adjusted retrospectively
for a number of different indicators, in which the largest adjustment was short-term
receivables with a decrease of 218 billion VND.

Indicators Consolidated Financial Statements 2015

Before After Difference
Short-term
1.078.891.706.723 861.276.830.300 (217.614.876.423)
Receivable
Inventory 2.296.856.163.607 2.297.561.529.207 705.365.600
Fixed Assets 485.684.250.918 482.025.372.409 (3.658.878.509)
LT Assets in Progress 257.318.232.189 245.818.232.189 (11.500.000.000)
Long-term Investment 179.681.351.402 202.883.688.578 23.202.337.176
- Other 291.508.882.968 295.421.197.185 3.912.314.217
Liability (2.750.873.364.820) (2.819.418.907.729) (68.545.542.909)
Net Asset 1.839.067.222.987 1.565.567.942.139 (273.499.280.848)
In principle, retrospective adjustments are made to ensure that the data accurately reflects
the real property at the time of the past. This raises the question as to whether the
receivables and inventories figures generated by the Board of Truong Thanh Corporation
and audited by DFK as of 31/12/2015 are incorrect.

In fact, businesses can use accounting tips to adjust numbers for their own purposes and
the task of auditing is to qualify and quantify these adjustments so that they are within a
certain framework, not to fall into the "material mistatement". The auditors said that
errors based on the value of total assets or sales fall into more than 1% or the deviation of
more than 5% profit is considered material.

I. Explain why data in Income Statement in the reporting year are 5% or more
different from the previous year.

1. Single entity Financial statements:

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 %
Data audited Data audited
Indicators Difference Increase/
in 2016 in 2015
Decrease
Gross
851.844.174.641 1.102.649.594.604 (250.805.419.063) -29%
Revenue
Cost of Sales 1.804.698.545.467 2.025.008.405.723 (220.309.860.256) -12%
Financial
51.855.284.023 56.422.763.138 (4.567.479.115) -9%
Income
Financial
397.653.157.384 319.534.156.637 78.119.000.747 20%
Expenses
G&A
(27.754.391.987) 323.365.377.270 (351.119.769.257) 1265%
Expenses
 Gross Revenue from Good Sold & Services Rended decreased by 29% due to the
adjustment of revenue which did not qualify to record revenue.

 Cost of Sales declined by 12% due to the adjustment of cost of sales’ decrease
according to revenue adjustment.

 Financial Income fell by 9% due to the adjustment of exchange rate gain or loss.

 Financial Expense increased by 20% mostly from the merge of 2 branch company.

 General and administration expenses decreased by 1265% due to the provision for
bad receivable debts.

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 2. Consolidated Financial Statements

%
Data audited Data audited
Indicators Difference Increase/
in 2016 in 2015
Decrease
Gross
643.964.132.354 1.249.514.429.533 (605.569.297.179) -48%
Revenue
Cost of
1.608.970.477.770 2.182.967.745.815 (573.997.268.045) -26%
Sales
Loss on
(3.889.142.632) 776.099.584 4.665.242.216 -601%
Joint Vent
G&A
52.967.836.207 405.900.124.343 (352.932.288.136) -87%
Expenses

 Gross Revenue from Good Sold & Services Rended decreased by 48% due to the
adjustment of dropping revenue which did not qualify to record revenue.

 Cost of Sales decreased by 26% due to the adjustment of cost of sales’ decrease
according to revenue adjustment.

 The loss in joint ventures declined by 601% due to the adjustment of joint
ventures’ income statement.

 General and administration expenses decrease by 87% due to the provision for bad
receivable debts.

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 II. Explain why data and profit after tax in the Income Statement in the reporting
year are 10% or more different from the previous year.

1. Single entity Financial statements:

Data audited Data audited % Increase/

Indicators Difference
in 2016 in 2015 Decrease

Loss after
corporate (1.275.586.231.739) (167.590.928.040) (1.107.995.303.699) - 661%
income tax

Explanation of business results with a loss of 1,275 billion VND on the single entity
financial statements is mainly due to:

 Handling, insufficient difference due to inventory 931 billion VND.

 Additional provision for investment in subsidiaries 34 billion VND.

 Interest expense 208 billion VND.

 Loss due to merger is 76 billion VND.

 Provision for devaluation of inventories 22 billion VND.

Explanation for the main reason for the fact that the after-tax profit of the single entity
income statement in the announced year changes by 10% or more compared to the
same period of the previous year:

 Handling differences shortage due to inventory of 931 billion VND.

 Gross profit from operating activities 178 billion VND.

 Financial expense increased 150 billion VND.

 Other income decreased 132 billion VND.

 Reversal of provision expense decreased by 305 billion VND.

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 2. Consolidated Financial Statements:

%
Data audited Data audited
Indicators Difference Increase/
in 2016 in 2015
Decrease
Loss after
corporate
(1.295.557.506.233) (98.145.834.080) (1.197.411.672.153) - 1220%
income
tax
Explanation of business results with a loss of 1.295 billion VND on the consolidated
financial statements is mainly due to:

 Handling differences due to inventory loss and loss 1.051 billion VND.

 Interest expense 273 billion VND.

 Income from loan principal and interest is written off 25.6 billion VND.

Explanation for the main reason for the fact that the after-tax profit of the
consolidated income statement in the announced year changes by 10% or more
compared to the same period of the previous year:

 Handling differences shortage due to inventory of 1.052 billion VND.

 Gross profit from operating activities 166 billion VND.

 Interest expense increased 58 billion VND.

 Other income decreased 188 billion VND.

 Reversal of provision expense decreased by 266 billion VND.

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Part 3. Consequences

Since the above information was announced, TTF's share price has continuously
decreased and is frequently in overs sold. The value of the stock has evaporated almost
half its value after half a month.

The audit firm is not responsible for finding fraud, but is it capable of finding it?

In the scandals that have occurred with audited financial statements of companies listed
on the stock exchange (such as: PVX, JVC ...), audit firms always answer that: we
comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.

Specifically, according to VSA 240, auditors are not responsible for finding frauds.

The prevention and detection of fraud is primarily the responsibility of the Board of
Directors of the entity being audited.

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The accuracy of financial statements when it comes to investors depends not only on the
Board of Directors of the company, it also depends on the ethics of the auditor because in
some circumstances, although discovered, the audit has passed or even helped customers
"reasonable" to keep the relationship. The fraud that led to the collapse of Enron
Corporation USA and the death of a major auditor, Arthur Andersen, is a story that the
audit industry will never forget. And the most recent are EY and Wirecard.

Part 4. Lessons

The accuracy of the financial statements for investors not only depends on the company's
board of directors, it also depends on the ethics of the auditor.

Although the auditor is not responsible for detecting fraud under the law, but if they
deliberately ignore the fraud of the customer, this law may prevent them from getting
involved in justice but cannot continue attracting investors, as well as will make
customers no longer trust them and leave forever. Because reputation is very important
thing for an audit firm.

=> Ethical requirements must always be a top priority when choosing auditors.

Safeguard Recommendation

- Policies and procedures for the implementation and supervision of the service contract
quality

- Assign a senior management responsible for overseeing the proper operation of the
quality control system of the auditing firm.

- Supervision by professional organizations or regulators and disciplinary actions

- The inspection and supervision of the state audit/independent 3rd party to avoid making
terrible mistakes and reducing material misstatements.

EVALUATION
1. Nguyễn Thị Tường Anh: part 1
2. Lê Diệu Linh: part 2
3. Lê Thị Khánh Linh: part 3
4. Trần Thu Vân: part 4

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