Principles of Auditing

Prescribed Reading
Course tittle: Principles of Auditing
Session Topic 1 Materials Exercises Notes

Audit Textbook (1): Chapter 2 Textbook (1): Chapter 2

Topic 2 2 environment Textbook (2): Chapter 1
Workbook: Chapter 1

Relevant Guidance (Quy định có liên quan)

Audit Environment
Lecturer: Mai Đức Nghĩa
School of Accounting, UEH
1 Code of Ethics
2 VSA/ISA 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND
THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL
STANDARDS ON AUDITING
The Law on Independent Audit in Vietnam (2011) & Decree No.
2 17/2012/ND-CP
(Luật Kiểm toán độc lập (2011) và Nghị định 17/2012)
2

Learning objectives of Topic 2 Characteristics of auditing profession

1. Outline the characteristics of auditing profession

2. Understand the role of Auditing Standards

3. Understand the concept of professional ethics Auditing  Social responsibility

4. Explain the fundamental principles of professional ethics Profession  Professional competence
5. Understand the overal objectives of the auditor  Practice criteria
 Maintain public’s confidence
6. Distinguish the responsibilities of auditor and management

7. Be aware of expectation gap

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Principles of Auditing

Nhöõng ñaëc ñieåm cuûa ngheà kieåm toaùn (tham khảo)

YÊU CẦU CỦA NGHỀ KIỂM TOÁN
 Laáy lôïi ích cuûa ñoâng ñaûo ngöôøi söû duïng laøm muïc tieâu vaø muïc ñích hoaït ñoäng. Coâng khai coi
traùch nhieäm ñoái vôùi xaõ hoäi, ñoái vôùi vieäc baûo veä lôïi ích cuûa ñoâng ñaûo ngöôøi söû duïng hôn laø
Traùch nhieäm ñoái vôùi xaõ hoäi nhöõng lôïi ích veà vaät chaát. Xem vieäc phuïc vuï xaõ hoäi coøn quan troïng hôn caû nhieäm vuï ñoái vôùi

Profession Trình ñoä chuyeân moân

khaùch haøng.
 Phaûi coù caùc tieâu chuaån rieâng cho nhöõng ngöôøi muoán tham gia vaøo hoaït ñoäng naøy, vaø phaûi baûo
Tieâu chuaån haønh ngheà ñaûm chaát löôïng dòch vuï cung öùng.
 Ñöôïc chính phuû chính thöùc coâng nhaän, thoâng qua vieäc caáp giaáy pheùp haønh ngheà kieåm toaùn vieân.
Nieàm tin cuûa coâng chuùng  Ñöôïc ñaøo taïo coù heä thoáng, phaûi coù kieán thöùc saâu roäng, vaø phaûi xem vieäc ñaùp öùng nhöõng yeâu caàu
cuï theå cuûa xaõ hoäi laø muïc tieâu hoaït ñoäng.
 Coù toå chöùc ngheà nghieäp rieâng.
5 6
CĐ: ĐẠO ĐỨC NGHỀ NGHIỆP
KTV

Nhöõng ñaëc ñieåm cuûa ngheà kieåm toaùn (tham khảo)

Characteristics of auditing profession
The Public Interest Requirements from Regulations
• Members (auditors) should accept the obligation to act in a way that will serve the public
interest, honor the public trust, and demonstrate commitment to professionalism.
 Public
Auditing Standards
Auditor Auditor issues audit report that is  Government
Client hires
Relied upon by users to reduce
information risk
Auditor’s responsibility
auditor
 Professional bodies
Codes of Ethics
Provides capital
External
Client
Users
Client provides financial
statements to users 7 8

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2. Auditing Standards CHUẨN MỰC KIỂM TOÁN VIỆT NAM (2014)

1. VSA 200 : Mục tiêu tổng thể của KTV và công ty KT khi thực hiện kiểm toán theo chuẩn mực kiểm toán VN

Auditing standard setters 2. VSA 210: Hợp đồng kiểm toán

3. VSA 220 : Kiểm sóat chất lượng hợp đồng kiểm toán BCTC
 Professional bodies
4. VSA 230: Tài liệu hồ sơ kiểm toán
 Government
5. VSA 240: Trách nhiệm của KTV liên quan đến gian lận trong BCTC
6. VSA 250: Xem xét tính tuân thủ pháp luật và các quy định trong kiểm toán BCTC
The roles of auditing standard 7. VSA 260: Trao đổi các vấn đề với ban quản trị công ty được kiểm toán
8. VSA 265:Trao dổi về những khiếm khuyết trong kiểm soát nội bộ với Ban quản trị và Ban Giám đốc đơn vị
To auditors (as a guides or manual for their professional services)
được kiểm toán
To users (as a safeguard to interest of users who use auditor’s report for their decsions) 9. VSA 300 :Lập kế họach kiểm toán BCTC
To professional bodies (as a tool to assess the audit quality work) 10.VSA 315: Xác định và đánh giá rủi ro có sai sót trọng yếu thông qua hiểu biết về đơn vị được kiểm toán và
môi truờng của đơn vị
9
11. VSA 320: Mức trọng yếu trong lập kế hoạch và thực hiện kiểm toán 10

CHUẨN MỰC KIỂM TOÁN VIỆT NAM (2014) INTERNATIONAL STANDARDS ON AUDITING (ISA)
ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISA
ISA 210, Agreeing the Terms of Audit Engagements
ISA 220, Quality Control for an Audit of Financial Statements
ISA 230, Audit Documentation
ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements
ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements
ISA 260, Communication with Those Charged with Governance
ISA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
ISA 300, Planning an Audit of Financial Statements
ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its
Environment
ISA 320, Materiality in Planning and Performing an Audit

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Principles of Auditing

3. Codes of Ethics
INTERNATIONAL STANDARDS ON AUDITING (ISA)
ISA 710, Comparative Information-Corresponding Figures and Comparative Financial Statements
ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing
Audited Financial Statements
3.1 Professional ethics
ISA 800, Special Considerations-Audits of Financial Statements Prepared in Accordance with Special
Purpose Frameworks 3.2 Purpose of the code of ethics
ISA 805, Special Considerations-Audits of Single Financial Statements and Specific Elements,
Accounts or Items of a Financial Statement
ISA 810, Engagements to Report on Summary Financial Statements

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3.1. Professional ethics

3.2. Purpose of the code of ethics
What is Professional Ethics ?
 Code of ethics: formal, systematic statement of rules, principles, regulations or laws
developed by a community to promote its well-being and punish undermining behaviour.
 The code therefore:

•Application of ethical principles and frameworks

makes explicit the values implicitly required
indicates how members should act (acceptable behaviours)

by professionals who have an obligation to provides an objective basis for sanctions. (demonstrate to the public that members are willing to be monitored)

those who rely on their services

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Principles of Auditing

4. Fundamental principles of Professional Ethics FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS

 Chính trực
Fundamental principles of professional conduct.
 Khách quan
 Independence: the expression of a conclusion without being affected by
 Năng lực chuyên môn influences
& tính thận trọng
 Integrity: honesty, fair dealing, being truthful and straightforward
 Bảo mật
 Objectivity: avoiding bias, not being unduly influenced by others
 Tư cách nghề nghiệp
 Professional competence and due care: maintaining professional skill at
 Tính độc lập
the required level, acting with diligence
 Confidentiality: neither revealing information nor using it for own benefit
 Professional behaviour: acting in accordance with laws and in a way that
does not bring discredit on the profession.

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FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS THE VALUE OF THE AUDIT DEPENDS ON AUDITOR
INDEPENDENCE

Independence is a key characteristic of an audit or assurance service provider.
In order for auditors to add credibility to financial reports or other subject
matter, they need to remain independent.
Bruce Smith works on the audit of the U.S. subsidiary of Ultimate Networks, an audit client in his firm’s Hong Kong
office. Bruce has watched the stock of Ultimate Networks soar for the past 6 months. Ultimate Networks is gaining
market share, and he knows that their sales will continue to soar with the new technology they have in the pipeline.
Finally, he can’t resist any longer. He calls his stockbroker, John Rizzo, and places an order for 200 shares of Ultimate
Networks’ stock. “Are you sure this is okay?” asked Rizzo. “I thought Ultimate Networks was your client.” Rizzo
knows about professional responsibilities because he worked with Bruce at the CPA firm before becoming a
stockbroker, and they remained friends. “Why don’t you check it out and get back to me?” Rizzo added.

The next morning, Bruce is glad that he has John Rizzo for a stockbroker. The SEC just announced that they had
uncovered numerous independence violations at another CPA firm. The firm had to recall several audit reports, and a
few partners and audit staff were terminated for making stock investments similar to the investment that Bruce
contemplated the day before. As he thinks about the requirement that he not own stock in an audit client, he concludes,
“There must be other good investments out there.’’

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Principles of Auditing

THE VALUE OF THE AUDIT DEPENDS ON AUDITOR FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS
INDEPENDENCE
Independence comprises:
1. What is the job of Mr Bruce?
(a) Independence of Mind (Độc lập về tư tưởng)
2. What did Bruce intend to do and why? The state of mind that permits the expression of a conclusion without being affected by influences that

3. What did the stockbroker (John Rizzo) say to Bruce? compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity

and professional skepticism. (also described as “independence in fact”)

4. What happened to another CPA firm by SEC?
(b) Independence in Appearance (Độc lập về hình thức)

5. How has Bruce felt in that morning? The avoidance of facts and circumstances that are so significant that a reasonable and informed third party

would be likely to conclude, weighing all the specific facts and circumstances, that a firm’s, or a member of the
6. What lesson has Bruce drawn from?
audit team’s, integrity, objectivity or professional skepticism has been compromised.

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FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS

(b) Independence in Appearance (Độc lập về hình thức) The following nine services are prohibited by the Sarbanes–Oxley Act and the SEC rules (US):

 If auditors are independent in fact but users believe them to be advocates for the client, most of 1. Bookkeeping and other accounting services

the value of the audit function is lost. 2. Financial information systems design and implementation
3. Appraisal or valuation services
 The auditor’s ability to maintain an unbiased viewpoint in the eyes of others
4. Actuarial services
5. Internal audit outsourcing
6. Management or human resource functions
7. Broker or dealer or investment adviser or investment banker services
8. Legal and expert services unrelated to the audit
9. Any other service that the PCAOB determines by regulation is impermissible
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FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS

Integrity (Chính trực)

• Notion of fair dealing and honesty Professional competence… (Năng lực chuyên môn)
• Having the courage of your convictions • Achieving a standard of knowledge and skill for admission to the profession
• Acting on principle, not from expediency • Gaining further knowledge, skill and experience through continuing professional development.
• Concept of independence is linked partly to integrity.
…and due care (thận trọng đúng mức)
Objectivity (Khách quan) • Acting diligently and in accordance with standards/regulations when providing professional
services
• Impartiality and honesty
• Acting in accordance with the assignment’s requirements, carefully, thoroughly and on a timely
• Freedom from conflicts of interest. basis.

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FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS FUNDAMENTAL PRINCIPLES OF PROFESSIONAL ETHICS

Confidentiality (Bảo mật)

• Do not disclose confidential information without specific and proper authority, or unless there Professional behaviour (Tư cách nghề nghiệp)
is a legal or professional right to disclose the information.
• Do not use confidential information to own personal advantage or the advantage of third • Comply with relevant laws and regulations
parties • Do not bring discredit on the profession
Applies:
• Duty to profession is therefore in addition to duty to public interest, clients and
 in a social and family environment, outside working hours
employers
 to accountants in other parts of the same organisation

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Principles of Auditing
5. OVERALL OBJECTIVES OF THE INDEPENDENT
AUDITOR
In conducting an audit of financial statements, the overall objectives of the auditor are:
(a) To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, thereby enabling the auditor to
express an opinion on whether the financial statements are prepared, in all material respects,
in accordance with an applicable financial reporting framework; and
(b) To report on the financial statements, and communicate as required by the ISAs, in
accordance with the auditor’s findings.
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THE INHERENT LIMITATIONS OF AN AUDIT
The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement due to fraud or
error. This is because there are inherent limitations of an audit, which result in most of the audit
evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive
rather than conclusive. The inherent limitations of an audit arise from:
• The nature of financial reporting;
• The nature of audit procedures; and
• The need for the audit to be conducted within a reasonable period of time and at a reasonable cost.
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5. OVERALL OBJECTIVES OF THE INDEPENDENT
AUDITOR
Reasonable assurance (Đảm bảo hợp lý)
 is a high level of assurance. It is obtained when the auditor has obtained sufficient appropriate
audit evidence to reduce audit risk (that is, the risk that the auditor expresses an inappropriate
opinion when the financial statements are materially misstated) to an acceptably low level.
 is not an absolute level of assurance, because there are inherent limitations of an audit which
result in most of the audit evidence on which the auditor draws conclusions and bases the
auditor’s opinion being persuasive rather than conclusive.
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NHỮNG HẠN CHẾ VỐN CÓ CỦA CUỘC KIỂM TOÁN (VSA 200, A45)
Kiểm toán viên không thể loại trừ hoàn toàn rủi ro kiểm toán và không thể đạt được sự
đảm bảo tuyệt đối về việc báo cáo tài chính hoàn toàn không có sai sót trọng yếu do
gian lận hoặc do nhầm lẫn. Cuộc kiểm toán luôn có những hạn chế vốn có làm cho hầu
hết các bằng chứng kiểm toán mà kiểm toán viên dựa vào để đưa ra kết luận và hình
thành ý kiến kiểm toán đều mang tính thuyết phục nhiều hơn là tính khẳng định chắc
chắn. Những hạn chế vốn có của cuộc kiểm toán bắt nguồn từ:
(1) Bản chất của việc lập và trình bày báo cáo tài chính;
(2) Bản chất của các thủ tục kiểm toán;
(3) Sự cần thiết phải thực hiện cuộc kiểm toán với thời gian và giá phí hợp lý.
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Principles of Auditing

THE INHERENT LIMITATIONS OF AN AUDIT THE INHERENT LIMITATIONS OF AN AUDIT

The nature of financial reporting The nature of audit procedures

 There is the possibility that management or others may not provide, intentionally or
 The preparation of financial statements involves judgment by management in applying the
unintentionally, the complete information that is relevant to the preparation of the financial
requirements of the entity’s applicable financial reporting framework to the facts and
statements or that has been requested by the auditor.
circumstances of the entity. In addition, many financial statement items involve subjective
 Fraud may involve sophisticated and carefully organized schemes designed to conceal it.
decisions or assessments or a degree of uncertainty, and there may be a range of acceptable
Therefore, audit procedures used to gather audit evidence may be ineffective for detecting an
interpretations or judgments that may be made. intentional misstatement that involves, for example, collusion to falsify documentation which may
cause the auditor to believe that audit evidence is valid when it is not.
 Accounting estimates
 An audit is not an official investigation into alleged wrongdoing

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THE INHERENT LIMITATIONS OF AN AUDIT 5. OVERALL OBJECTIVES OF THE INDEPENDENT

AUDITOR

The need for the audit to be conducted within a reasonable period of time and at
a reasonable cost
 It is impracticable to address all information that may exist or to pursue every
matter exhaustively
 Users of financial statements expect that the auditor will form an opinion on
the financial statements within a reasonable period of time and at a
reasonable cost
Material misstatement (Sai sót trọng yếu)
 In general, misstatements, including omissions, are considered to be material if,
individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial statements.
Judgments about materiality are made in the light of surrounding circumstances,
and are affected by the auditor’s perception of the financial information needs of
users of the financial statements, and by the size or nature of a misstatement, or a
combination of both.

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5. OVERALL OBJECTIVES OF THE INDEPENDENT 5. OVERALL OBJECTIVES OF THE INDEPENDENT

AUDITOR
 Auditors are required to exercise professional judgment and maintain professional
skepticism throughout the audit of financial statements (including planning, performance and
completeness of the audit).
 Professional judgment: (Xét đoán nghề nghiệp)
The application of relevant training, knowledge and experience, within the context provided
by auditing, accounting and ethical standards, in making informed decisions about the
courses of action that are appropriate in the circumstances of the audit engagement.
AUDITOR
Professional judgment is essential to the proper conduct of an audit. This is because interpretation of
relevant ethical requirements and the ISAs and the informed decisions required throughout the audit
cannot be made without the application of relevant knowledge and experience to the facts and
circumstances. Professional judgment is necessary in particular regarding decisions about:
• Materiality and audit risk.
• The nature, timing and extent of audit procedures used to meet the requirements of the ISAs and
gather audit evidence.
• Evaluating whether sufficient appropriate audit evidence has been obtained, and whether more needs
to be done to achieve the overall objectives of the auditor.
• The evaluation of management’s judgments in applying the entity’s applicable financial reporting
framework.
 The drawing of conclusions based on the audit evidence obtained

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5. OVERALL OBJECTIVES OF THE INDEPENDENT 5. OVERALL OBJECTIVES OF THE INDEPENDENT

AUDITOR
Professional skepticism: (Hoài nghi nghề nghiệp)
An attitude that includes a questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud, and a critical assessment of
audit evidence.
Professional skepticism includes being alert to, for example:
• Audit evidence that contradicts other audit evidence obtained.
• Information that brings into question the reliability of documents and responses
to inquiries to be used as audit evidence.
• Conditions that may indicate possible fraud.
• Circumstances that suggest the need for audit procedures in addition to those
39required by the ISAs.
AUDITOR
Professional skepticism:(Hoài nghi nghề nghiệp)
An attitude that includes a questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud, and a critical assessment of
audit evidence.
Professional skepticism includes being alert to, for example:
• Audit evidence that contradicts other audit evidence obtained.
• Information that brings into question the reliability of documents and responses
to inquiries to be used as audit evidence.
• Conditions that may indicate possible fraud.
• Circumstances that suggest the need for audit procedures in addition to those
40required by the ISAs.

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Principles of Auditing
5. OVERALL OBJECTIVES OF THE INDEPENDENT
AUDITOR
Maintaining professional skepticism throughout the audit enables the auditor to reduce the risks
of:
• Overlooking unusual circumstances.
• Over generalizing when drawing conclusions from audit observations.
• Using inappropriate assumptions in determining the nature, timing and extent of the audit
procedures and evaluating the results thereof.
The auditor is required to consider the reliability of information to be used as audit evidence. In
cases of doubt about the reliability of information or indications of possible fraud (for example, if
conditions identified during the audit cause the auditor to believe that a document may not be
authentic or that terms in a document may have been falsified), the ISAs require that the auditor
investigate further and determine what modifications or additions to audit procedures are
necessary to resolve the matter.
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DISTINGUISH THE RESPONSIBILITIES
The audit of the financial statements does not relieve management or those
charged with governance of their responsibilities (ISA 200, Para 04).
Management or those charged with governance hold their full responsibilities
regardings to preparation of financial statements in accordance with the
applicable financial reporting framework
Báo cáo tài chính sử dụng để kiểm toán là báo cáo đã được Ban Giám đốc đơn vị được
kiểm toán lập với sự giám sát của Ban quản trị đơn vị, đã ký tên, đóng dấu theo quy
định của pháp luật.
Việc kiểm toán báo cáo tài chính không làm giảm nhẹ trách nhiệm của Ban Giám đốc
hoặc Ban quản trị đơn vị được kiểm toán (VSA 200, đoạn 04)
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6. RESPONSIBILITY OF MANAGEMENT
Management and, where appropriate, those charged with governance have
acknowledged and understand that they have the following responsibilities that
are fundamental to the conduct of an audit in accordance with ISAs.
(i) Preparation of the financial statements in accordance with the applicable
financial reporting framework
(ii) Matainance of internal control that is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due
to fraud or error; and
(iii) Providing the auditor with access to all information and persons within the
entity from whom the auditor determines it necessary to obtain audit
evidence
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RESPONSIBILITY OF THE INDEPENDENT AUDITOR
Kieåm toaùn vieân thöïc hieän kieåm toaùn theo chuaån möïc kieåm toaùn
Vieät Nam (hoaëc chuaån möïc kieåm toaùn quoác teá ñöôïc chaáp nhaän)
ñeå coù ñöôïc moät söï ñaûm baûo hôïp lyù raèng baùo caùo taøi chính neáu
coù sai soùt troïng yeáu thì ñaõ ñöôïc kieåm toaùn vieân phaùt hieän vaø trình
baøy trong baùo caùo kieåm toaùn. Baùo caùo taøi chính ñaõ ñöôïc kieåm
toaùn, noùi chung khoâng coøn (hoaëc khoâng coù) sai soùt troïng yeáu.
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Principles of Auditing

7. Expectation Gap (KHOAÛNG CAÙCH GIÖÕA MONG ÑÔÏI

VAØ HIEÄN THÖÏC)

Mong ñôïi cuûa Chuaån möïc Chuaån möïc Chaát löôïng

ngöôøi söû duïng hôïp lyù hieän haønh dòch vuï thöïc teá
Kyø voïng khoâng
hôïp lyù Dòch vuï chöa hoaøn haûo
(Reasonableness (Performance gap)
gap)

Giaûi thích cho Hoaøn thieän Taêng cöôøng

kieåm soaùt
ngöôøi söû duïng chuaån möïc chaát löôïng

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