Principles of Auditing

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

1 Introduction to Textbook (1): Chapter 1 Textbook (1): Chapter 1

Auditing &
Independent Textbook (2): Chapter 1 Workbook: Chapter 1
Topic 1 Auditing
Relevant Guidance (Quy định có liên quan)

Introduction to ISA200 Overall Objectives of the Independent Auditor, and the Conduct of an Audit
in Accordance with International Standards on Auditing
Auditing & Independent Auditing VSA200 Mục tiêu tổng thể của kiểm toán viên và doanh nghiệp kiểm toán khi thực
hiện kiểm toán theo chuẩn mực kiểm toán Việt Nam

Lecturer: Mai Đức Nghĩa

School of Accounting, UEH
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Learning objectives of Topic 1

Contents of Topic 1

1.1 Understand the nature of auditing and assurance services.

1 Definition of Auditing & Assurance Service
1.2 Define auditing & distinguish different types of audits that can be provided by various auditors.
2 Classification of Audit
1.3 Appreciate the development of audit profession.

1.4 Understand the reasons giving rise to demand for the audit of financial statements. 3 Development of Audit Profession (Self-study)

1.5 Appreciate the objectives of of the Independent Auditor, and the Conduct of an Audit

1.6 Appreciate the role of auditing standards and a general auditing process. 4 Roles of Independent Audit Service (Self-study)

5 Auditors, Audit firms & Professional bodies 4

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How do we assure that accounting information is trustworthy?

Objectives of accounting

“Provide information that is useful to existing and

potential investors, lenders and other creditors in
making decisions about providing resources to
the entity”

The decisions made by users will involve:

Investment decisions
Financing decisions
Voting, or influencing management actions

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Relationships Among Auditors, Client, and External Users

1. Definition of Auditing & Assurance Service

A Statement of Basic Auditing Concepts

Auditor issues (ASOBAC-the American Accounting Association) defines auditing as:
Client or audit
committee hires report relied assertions on financial statement
auditor Auditor upon by users to reduce (a statement that you strongly believe is true)
information risk
‘A systematic process of objectively obtaining and evaluating evidence
cơ sở dẫn liệu của bttc ( theo kế toán )
regarding assertions about economic actions and events to ascertain the
tT200, acc law
Provides capital degree of correspondence between those assertions and established criteria,
External
Client and communicating the results to interested users.’
Users
decree: nghị định
Client provides financial circular: thông tư
statements to users directive: chỉ thị
company
resoluton: nghị quyết
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Key terms of Audit definition Summary of Audit definition

The important parts of this
definition: assertions about economic
• Systematic process — audits are structured activities actions and events
• Objectivity — freedom from bias (thiên vị)
• Obtaining and evaluating evidence — allows the auditor
to determine the support for assertions or representations
Competent, obtains and
• Assertions about economic actions and events — describes the subject Determines the degree of communicates
independent evaluates
matter of an audit correspondence the results
person evidence
• Degree of correspondence … established criteria — the purpose of the audit
is to determine conformity
with some specified criteria
• Communicating results — the results must be
communicated to interested parties Established criteria

9 Các tiêu chuẩn được thiết tập 10

Fore reference (Tham khảo)

Audit of a Tax Return Example
Definition of auditing (Arens)

Auditing is the accumulation and evaluation of evidence about

information to determine and report on the degree of
correspondence between the information and established criteria.

Auditing should be done by a competent, independent person.

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2. Classification of Audit
Contents of Topic 1
Criteria of classifying

1 Definition of Auditing & Assurance Service

AUDITORS The purposes
of Audit

2 Classification of Audit assertions about economic

actions and events

3 Development of Audit Profession Competent, obtains and

Determines the degree of communicates
independent evaluates
correspondence the results
person evidence

4 Roles of Independent Audit Service

Established criteria

5 Auditors, Audit firms & Professional bodies 13

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2.1. Types of Audit

2. Classification of Audit
Criteria of classifying

AUDIT PURPOSES (Phân loại theo Mục đích)

AUDIT PURPOSES (Mục đích) AUDITORS (Chủ thể)

 OPERATIONAL AUDIT
efficiency and effectiveness of
  are employed by organizations to audit for
operating procedures/methods.
 COMPLIANCE AUDIT kiểm toán tuân thủ
 determine whether specific procedures,
rules, or regulations are followed or not.
 FINANCIAL STATEMENT AUDIT
 determine whether financial statements
are true and fair.
2.1.1. Operational audit (Kiểm toán hoạt động)
 INTERNAL AUDITORS
2.1.2. Compliance audit (Kiểm toán tuân thủ)
management with oversight by the board of
directors
2.1.3. Financial Statement audit (Kiểm toán BCTC)
 STATE AUDITORS kiểm toán nhà nước
 auditors who are working for the public
bodies (eg, audit tax returns)
 INDEPENDENT/EXTERNAL AUDITORS
 certified public accountant are responsible
for auditing the historical FSs.
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2.1.1. Operational audit (Kiểm toán hoạt động) 2.1.1. Operational audit (Kiểm toán hoạt động)
 Examples:
 evaluate the efficiency and accuracy of processing payroll transactions in a newly installed computer
hữu hiệu hiệu quả system (đánh giá tính hữu hiệu & chính xác của phần mềm tính lương)
 Purpose (Mục tiêu): An operational audit evaluates the efficiency and effectiveness of  evaluate the efficiency, accuracy, and customer satisfaction in processing the distribution of letters
any part of an organization’s operating procedures and methods. and packages by a company such as Federal Express. (đánh giá tính hữu hiệu, chính xác, mức độ hài
lòng của khách hàng trong việc sử dụng dịch vụ thư tín và giao hàng)
At the completion of an operational audit, management normally expects
recommendations for improving operations.  Criteria: It is more difficult to objectively evaluate whether the efficiency and
effectiveness of operations meets established criteria than it is for compliance and
 Audited Objects (Đối tượng được kiểm toán): They can include the evaluation of financial statement audits.
organizational structure, computer operations, production methods, marketing, and any  Also, establishing criteria for evaluating the information in an operational audit is
other area in which the auditor is qualified. extremely subjective. (Operational auditing is more like management consulting than
what is usually considered auditing.)
hhieu :đánh giá về sluong, chất lượng, chi phí
Hiệu quả là sự so sánh giữa lợi ích và chi phí,
cp nào càng ít thì càng hiệu quả 17 18

Differentiate: Effectiveness & Efficiency 2.1.2. Compliance audit (Kiểm toán tuân thủ)
Tính hữu hiệu (Effectiveness): là mức độ hoàn thành các nhiệm vụ
hay các mục tiêu mong đợi.  Purpose: A compliance audit is conducted to determine whether the auditee is following
specific procedures, rules, or regulations set by some higher authority.
Actual Results Objectives/Expectation
Effectiveness: fulfilling a specified function in fact  Audited Objects:
Tính hiệu quả (Efficiency): đánh giá bằng cách so sánh giữa kết quả
đạt được và nguồn lực đã được sử dụng để tạo ra kết quả đó.  Governmental units, such as school districts, are subject to considerable compliance auditing
because of extensive government regulation.
 Many private and not-for-profit organizations have prescribed policies, contractual
Actual Results Resources/Output agreements, and legal requirements that may require compliance auditing.
Efficiency: achieving maximum productivity with minimum wasted effort or expense  Compliance audits for funded grant programs are often done by CPAs.
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2.1.2. Compliance audit (Kiểm toán tuân thủ) 2.1.3. Financial Statement Audits (Kiểm toán BCTC)

 Purpose: A financial statement audit is conducted to determine whether the financial

statements (the information being verified) are stated in accordance with specified
 Criteria: prescribed procedures and regulations. criteria.

 Purpose: Examples:  Audited Objects: financial statements.

 Determine whether accounting personnel are following the procedures prescribed by the company
controller (bộ phận kế toán có tuân thủ thủ tục hay không).
 Review wage rates for compliance with minimum wage laws (tuân thủ quy định về mức lương tối thiểu
 Examples:
theo luật lao động).  Audit a set of financial statements as requirements of Securities and Exchange Commission.
 Examine contractual agreements with bankers and other lenders to be sure the company is complying with
legal requirements (tuân thủ hợp đồng cho vay).
 Criteria: accounting standards.

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Example of Audit of Historical Financial Statements Exercise 1: Examples of the Three Types of Audits

Eg.: Annual audit of Boeing’s financial statements

-Efficiency of production Industry best practices
Review of a company's -Use of materials Company standards
manufacturing process -Quality control procedures Cost-effectiveness goals

Information Boeing's financial statements

Established Generally accepted accounting

Criteria principles
Available Documents, records, and outside
Evidence sources of evidence independent auditors mostly do FS audits

Please print it out & fill it by yourself, then take a picture of it and pots it to LMS assessment
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submission.
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2.2. Types of Audit

2.2.1. Internal Auditor (Kiểm toán nội bộ)

AUDITORS (Phân loại theo CHỦ THỂ)  Internal auditors: are employed by all types of organizations to audit for management with
oversight by the board of directors. (internal employees)
2.2.1. Internal auditor (Kiểm toán nội bộ)
 Purpose: to conduct financial, internal control, compliance, operation and forensic audits
2.2.2. State auditor (Kiểm toán Nhà nước) within their organization ( Internal auditors’ responsibilities vary considerably,
depending on the employer.)

2.2.3. Independent auditor (Kiểm toán độc lập)

To maintain independence from other business functions, the internal audit group
typically reports directly to the president, another high executive officer, or the audit
committee of the board of directors.

Certification: Internal auditors often pursue certification as a certified internal

auditor (CIA), and some internal auditors pursue both the CPA and CIA designations.
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2.2.2. State Auditor (Kiểm toán Nhà Nước) 2.2.3. Independent/External Auditor (Kiểm toán độc lập)

 State auditors: are auditors working for public bodies.

 Audited Objects: the primary responsibility is to perform the audit function for
Government, and it has many of the same audit responsibilities as a CPA firm.  Accounting firms: are responsible for auditing the historical financial statements of all
publicly traded companies.

 Examples: Audit of tax returns (thanh tra thuế), involving individual income taxes, gift taxes, estate taxes,
corporate taxes, and so on.  Audited Objects: most other reasonably large companies, and many smaller companies
and noncommercial organizations.

 Criteria: applied regulations.

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3.1. The development of Auditing Profession

Contents of Topic 1
Before 1900
Objective To detect errors and frauds
1 Definition of Auditing & Assurance Service
Method Verify in details the entire
2 Classification of Audit transactions
(Kiểm tra chi tiết toàn bộ
3 Development of Audit Profession nghiệp vụ)
After 1900
Give an opinion on truthfulness and
faithfulness of accounting figure
+ Audit sampling (chọn mẫu)
+ Rely on internal control system
+ Audit in the CIS environment.
+ Audit approach techniques based on
risk assessment.

4 Roles of Independent Audit Service User Owners Shareholders, investors, creditors.

5 Auditors, Audit firms & Professional bodies 29 30

3.2. The development of Auditing Profession in Vietnam International Market of Audit Profession (Big 4)

• 05/1991: The first audit firm in Vietnam (VACO) was established

• 01/1994: Issued the regulation on independent audit activities (Decree 07/CP).
• 09/1999: Issued the first 4 VSAs.
• 03/2004: Issue a new regulation on independent audit activities (Decree 105/2004/ND-CP)
• 04/2005: Establishment of VACPA.
• 12/2005: Issued 37 standards
• 01/2012: Decree 17/2012 / ND-CP, implementation of the Law on Independent Audit
• 12/2012: Re-issued 37 new auditing standards effective from January 1, 2014 (Circular
214/2012-TT_BTC)

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Revenue of the Big Four accounting/audit firms worldwide by region 2019

Contents of Topic 1
In billion U.S. dollars

1 Definition of Auditing & Assurance Service

2 Classification of Audit

3 Development of Audit Profession

4 Roles of Independent Audit Service

5 Auditors, Audit firms & Professional bodies 34

Source: https://www.statista.com/statistics/250944/big-four-accounting-firms-geographical-breakdown-of-revenues/ 33

4. The Roles of External Audit in the Economy 4.1. Attributes of accounting information
 From AASB/IASB framework, the following attributes of accounting information
4.1. Attributes of accounting information provide the basis for the audit function:

4.2. Demand for assurance Fundamental characteristics

• relevance
4.3. Hypotheses explaining demand for assurance • faithful representation

Enhancing characteristics
• comparability
• verifiability
• timeliness
• understandability

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4.2. Economic Demand for assurance

Demand Driver Information risk

provide
Good attributes of the basis for the audit
accounting information function
What is meant
Fundamental Enhancing
by “Information risk”?

 Relevance  Comparability
 Verifiability

 Faithful  Timeliness
Auditing can have a significant effect
Representation  Understandability
on information risk. 38

4.2.1. Demand Driver Information Risk

 Các nguyên nhân:

Demand Driver Information risk
• Động cơ của người cung cấp thông tin (Conflict of interest/motives of provider)
Demand arises because users are not in a position to establish the • Tầm quan trọng/hậu quả của thông tin cho việc ra quyết định (Consequence-the quality
of information)
credibility of the information they are presented with.
• Khối lượng và tính phức tạp của thông tin (Complexity)
• Sự khó khăn trong tiếp cận thông tin (Remoteness of information)

Information
is likely to
be
distorted.
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4.2.3. Solutions? Benefits of assurance

Consider these following
solutions?
Risky?
Characteristics of demand for assurance results in following
The users directly check the information benefits:
• Increased relevance and reliability of assured information means that
Strengthen the legal responsivities of shareholders and debtholders will invest with greater confidence,
the Board of Directors reducing information risk, and therefore a reduced cost of capital.
Compulsorily audited financial
statements
• Financial analysts will make more accurate and informed
recommendations.

Auditing can have a significant effect on information risk. Both should result in improved allocation of resources across range of
investment opportunities
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Other benefits of assurance

Contents of Topic 1
An assurance service may also result in one or both of the
following:
1 Definition of Auditing & Assurance Service
• recommendations by the assurance provider to improve the efficiency and
effectiveness of operations
2 Classification of Audit
• a positive influence on the behaviour of people whose activities are being
assured. 3 Development of Audit Profession

4 Roles of Independent Audit Service

5 Auditors, Audit firms & Professional bodies 44

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5. Auditors, Audit firms & Professional bodies 5.1. Auditors in Vietnam (1)
Reference: Textbook 1: Chapter 2 Chapter 2. AUDITORS AND PRACTICING AUDITORS
for Australia CPA
Article 14. Standards of auditors

1. Auditors must meet the following standards:

1. Auditors (Kiểm toán viên)
a) Having full civil act capacity;
2. Audit firms (Doanh nghiệp kiểm toán) b) Having good morals, sense of responsibility, integrity, honesty, objectivity;
c) Having degree of university or higher to be of financial, banking, accounting, auditing
3. Professional bodies (Hội Nghề Nghiệp) disciplines or other disciplines as prescribed by the Ministry of Finance;
d) Having certificates of auditors in accordance with regulations the Ministry of Finance.

2. Where person who have foreign certificates recognized by the Ministry of Finance, passing
the examinations in Vietnamese on Vietnam law and meeting fully the standards specified in
point a and point b clause 1 of this Article shall be recognized as auditors.

45 Source: LAW ON INDEPENDENT AUDIT 46

5.1. Auditors in Vietnam (1) 5.1. Auditors in Vietnam (2)

Chương 2 KIỂM TOÁN VIÊN VÀ KIỂM TOÁN VIÊN HÀNH NGHỀ Chapter 2. AUDITORS AND PRACTICING AUDITORS
Điều 14. Tiêu chuẩn kiểm toán viên Article 14. Standards of auditors

1. Kiểm toán viên phải có đủ các tiêu chuẩn sau đây:
a) Có năng lực hành vi dân sự đầy đủ;
b) Có phẩm chất đạo đức tốt, có ý thức trách nhiệm, liêm khiết, trung thực, khách quan;
c) Có bằng tốt nghiệp đại học trở lên thuộc chuyên ngành tài chính, ngân hàng, kế toán, kiểm
toán hoặc chuyên ngành khác theo quy định của Bộ Tài chính;
d) Có Chứng chỉ kiểm toán viên theo quy định của Bộ Tài chính.
2. Trường hợp người có chứng chỉ của nước ngoài được Bộ Tài chính công nhận, đạt kỳ thi
sát hạch bằng tiếng Việt về pháp luật Việt Nam và có đủ các tiêu chuẩn quy định tại điểm a và
điểm b khoản 1 Điều này thì được công nhận là kiểm toán viên.
1. Auditors must meet the following standards:
a) Having full civil act capacity;
b) Having good morals, sense of responsibility, integrity, honesty, objectivity;
c) Having degree of university or higher to be of financial, banking, accounting, auditing
disciplines or other disciplines as prescribed by the Ministry of Finance;
d) Having certificates of auditors in accordance with regulations the Ministry of Finance.
2. Where person who have foreign certificates recognized by the Ministry of Finance, passing
the examinations in Vietnamese on Vietnam law and meeting fully the standards specified in
point a and point b clause 1 of this Article shall be recognized as auditors.

Source: LAW ON INDEPENDENT AUDIT 47 48

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5.1. Auditors in Vietnam (2) 5.2. Audit firms (Certified Public Accounting Firms)
SPECIFIC PROVISIONS - Section 1 - Article 4 (Circular No: 91/2017/TT-BTC)
Article 4. Eligibility for taking exams  There are many levels of audit firms:
An applicant for audit practicing certificate or accounting practicing certificate must have the following
eligibilities: – Big Four international firms
– National firms
1. Meet standards in professional ethics, truthfulness, integrity, and high sense of law observance;
– Regional and large local firms
2. Obtain at least a bachelor's degree in finance, banking, accounting, or audit; or a bachelor's degree in
other majors with total units of study (or classes) of subjects: Finance, accounting, audit, financial activity – Small local firms
analysis, or taxation accounting for at least 7% of total units of study (or classes) of the entire course; or
obtain a bachelor's degree in other majors and audit or accounting certificates or degrees awarded by
 The largest international firms are known as the 'Big Four'. They are:
international audit or accounting associations as prescribed in Article 9 hereof;
– PricewaterhouseCoopers
3. Have at least 36 months’ experience in finance, accounting, or audit field, which is determined in the
period beginning from the month of graduation specified in the bachelor's degree (or postgraduate degree) – EY
to the time of application for taking exams. Actual working time includes the period of working as audit – KPMG
assistant at audit firms, as internal auditor at internal audit department, or as auditor at state audit
– Deloitte
agencies;
4. Submit sufficient and required application for examination and exam fees as prescribed;
5. Not subject to Clause 1 and Clause 2 Article 52 of the Law on Accounting.  The Big Four dominate the practice of public accounting, especially for large listed clients.
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5.2. Organizational Structure 5.2. Services provided by Audit firms

Assurance service  Audit

 Review
 Proprietorship (Doanh nghiệp tư nhân)  Other assurance services

Related services  Agreed-upon procedures regarding financial information

 Compilation of financial information
 Partnership (Công ty hợp danh)
Tax services  Tax consultancy
 Tax planning/reporting
 Limited liability company (Công ty TNHH)
Management consultancy  Financial consultancy
 Strategy development

Other services  Education/Training

51  Head hunting 52

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5.3. Professional bodies

Hierarchy of a Typical CPA Firm
 International professional bodies:

Breadth of Experience  The American Institute of CPAs (AICPA)

Chủ phần hùn

Partners 10+ years
 The Association of Chartered Certified Accountants (ACCA)
Chủ nhiệm
Managers kiểm toán 5-10

Seniors  CPA Australia, and so on.

2-5
Trưởng nhóm kiểm toán

 In Vietnam
Staff/Assistants 0-2
Vietnam Association of Certified Public Accountants – VACPA
Trợ lý kiểm toán (established in 2005 and started to operate from 1/1/2006)
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