Principles of Auditing
Prescribed Reading
Course tittle: Principles of Auditing
Materials
Exercises
Notes
Session
Topic 1
1
Introduction to
Auditing &
Independent
Auditing
Textbook (1): Chapter 1
Textbook (1): Chapter 1
Textbook (2): Chapter 1
Workbook: Chapter 1
ISA200
Overall Objectives of the Independent Auditor, and the Conduct of an Audit
in Accordance with International Standards on 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
Topic 1
Relevant Guidance (Quy định có liên quan)
Introduction to
Auditing & Independent Auditing
Lecturer: Mai Đức Nghĩa
School of Accounting, UEH
2
Learning objectives of Topic 1
Contents of Topic 1
1.1 Understand the nature of auditing and assurance services.
1.2 Define auditing & distinguish different types of audits that can be provided by various auditors.
1
Definition of Auditing & Assurance Service
2
Classification of Audit
3
Development of Audit Profession
(Self-study)
4
Roles of Independent Audit Service
(Self-study)
5
Auditors, Audit firms & Professional bodies
1.3 Appreciate the development of audit profession.
1.4 Understand the reasons giving rise to demand for the audit of financial statements.
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.
3
Mai Duc Nghia (UEH)
4
1
Principles of Auditing
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
6
5
Relationships Among Auditors, Client, and External Users
Client or audit
committee hires
auditor
Auditor
1. Definition of Auditing & Assurance Service
A Statement of Basic Auditing Concepts
(ASOBAC-the American Accounting Association) defines auditing as:
Auditor issues
report relied
upon by users to reduce
information risk
‘A systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the
Provides capital
Client
degree of correspondence between those assertions and established criteria,
External
Users
and communicating the results to interested users.’
Client provides financial
statements to users
7
Mai Duc Nghia (UEH)
8
2
Principles of Auditing
Key terms of Audit definition
Summary of Audit definition
The important parts of this
definition:
assertions about economic
actions and events
• Systematic process — audits are structured activities
• Objectivity — freedom from bias
• Obtaining and evaluating evidence — allows the auditor
to determine the support for assertions or representations
• Assertions about economic actions and events — describes the subject
matter of an audit
• 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
Competent,
independent
person
obtains and
evaluates
evidence
Determines the degree of
correspondence
communicates
the results
Established criteria
9
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.
11
Mai Duc Nghia (UEH)
12
3
Principles of Auditing
2. Classification of Audit
Contents of Topic 1
Criteria of classifying
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
The purposes
of Audit
AUDITORS
assertions about economic
actions and events
Competent,
independent
person
obtains and
evaluates
evidence
Determines the degree of
correspondence
communicates
the results
Established criteria
14
13
2.1. Types of Audit
2. Classification of Audit
Criteria of classifying
AUDIT PURPOSES (Phân loại theo Mục đích)
AUDIT PURPOSES (Mục đích)
 OPERATIONAL AUDIT
efficiency and effectiveness
operating procedures/methods.

of
 COMPLIANCE AUDIT
 determine whether specific procedures,
rules, or regulations are followed or not.
 FINANCIAL STATEMENT AUDIT
 determine whether financial statements
are true and fair.
 INTERNAL AUDITORS
2.1.2. Compliance audit (Kiểm toán tuân thủ)
 are employed by organizations to audit for
management with oversight by the board of
directors
2.1.3. Financial Statement audit (Kiểm toán BCTC)
 STATE AUDITORS
 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.
Mai Duc Nghia (UEH)
2.1.1. Operational audit (Kiểm toán hoạt động)
AUDITORS (Chủ thể)
15
16
4
Principles of Auditing
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
system (đánh giá tính hữu hiệu & chính xác của phần mềm tính lương)
 evaluate the efficiency, accuracy, and customer satisfaction in processing the distribution of letters
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)
 Purpose (Mục tiêu): An operational audit evaluates the efficiency and effectiveness of
any part of an organization’s operating procedures and methods.
At the completion of an operational audit, management normally expects
recommendations for improving operations.
 Audited Objects (Đối tượng được kiểm toán): They can include the evaluation of
organizational structure, computer operations, production methods, marketing, and any
other area in which the auditor is qualified.
 Criteria: It is more difficult to objectively evaluate whether the efficiency and
effectiveness of operations meets established criteria than it is for compliance and
financial statement audits.
 Also, establishing criteria for evaluating the information in an operational audit is
extremely subjective. (Operational auditing is more like management consulting than
what is usually considered auditing.)
17
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.
Actual Results
 Purpose: A compliance audit is conducted to determine whether the auditee is following
specific procedures, rules, or regulations set by some higher authority.
Objectives/Expectation
 Audited Objects:
Effectiveness: fulfilling a specified function in fact
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.
Actual Results
18
 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
agreements, and legal requirements that may require compliance auditing.
Resources/Output
 Compliance audits for funded grant programs are often done by CPAs.
Efficiency: achieving maximum productivity with minimum wasted effort or expense
19
20
Mai Duc Nghia (UEH)
5
Principles of Auditing
2.1.3. Financial Statement Audits (Kiểm toán BCTC)
2.1.2. Compliance audit (Kiểm toán tuân thủ)
 Criteria: prescribed procedures and regulations.
 Purpose: A financial statement audit is conducted to determine whether the financial
statements (the information being verified) are stated in accordance with specified
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).
 Examples:
 Review wage rates for compliance with minimum wage laws (tuân thủ quy định về mức lương tối thiểu
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.
21
Example of Audit of Historical Financial Statements
22
Exercise 1: Examples of the Three Types of Audits
Eg.: Annual audit of Boeing’s financial statements
Information
Boeing's financial statements
Established Generally accepted accounting
Criteria
principles
Available
Evidence
Documents, records, and outside
sources of evidence
23
Mai Duc Nghia (UEH)
Please print it out & fill it by yourself, then take a picture of it and pots it to LMS assessment
submission.
24
6
Principles of Auditing
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
within their organization ( Internal auditors’ responsibilities vary considerably,
depending on the employer.)
2.2.2. State auditor (Kiểm toán Nhà nước)
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.
25
2.2.2. State Auditor (Kiểm toán Nhà Nước)
Certification: Internal auditors often pursue certification as a certified internal
auditor (CIA), and some internal auditors pursue both the CPA and CIA designations.
26
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.
27
Mai Duc Nghia (UEH)
28
7
Principles of Auditing
3.1. The development of Auditing Profession
Contents of Topic 1
Before 1900
After 1900
Objective
To detect errors and frauds
Give an opinion on truthfulness and
faithfulness of accounting figure
Method
1
Definition of Auditing & Assurance Service
2
Classification of Audit
Verify in details the entire
transactions
3
Development of Audit Profession
(Kiểm tra chi tiết toàn bộ
nghiệp vụ)
+ 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
Owners
Shareholders, investors, creditors.
5
Auditors, Audit firms & Professional bodies
User
29
International Market of Audit Profession (Big 4)
3.2. The development of Auditing Profession in Vietnam
•
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
30
214/2012-TT_BTC)
31
Mai Duc Nghia (UEH)
32
8
Principles of Auditing
Revenue of the Big Four accounting/audit firms worldwide by region 2019
Contents of Topic 1
In billion U.S. dollars
Source: https://www.statista.com/statistics/250944/big-four-accounting-firms-geographical-breakdown-of-revenues/
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
33
4. The Roles of External Audit in the Economy
4.1. Attributes of accounting information
4.1. Attributes of accounting information
 From AASB/IASB framework, the following attributes of accounting information
provide the basis for the audit function:
4.2. Demand for assurance
Fundamental characteristics
• relevance
• faithful representation
4.3. Hypotheses explaining demand for assurance
Enhancing characteristics
• comparability
• verifiability
• timeliness
• understandability
35
Mai Duc Nghia (UEH)
36
9
Principles of Auditing
4.2. Economic Demand for assurance
Good attributes of
accounting information
Fundamental
Enhancing
 Relevance
 Comparability
provide
Demand Driver
Information risk
the basis for the audit
function
What is meant
by “Information risk”?
 Verifiability
 Faithful
Representation
 Timeliness
Auditing can have a significant effect
on information risk.
 Understandability
38
Information Risk
4.2.1. Demand Driver
 Các nguyên nhân:
Demand Driver
Information risk
• Động cơ của người cung cấp thông tin (Conflict of interest/motives of provider)
• Tầm quan trọng/hậu quả của thông tin cho việc ra quyết định (Consequence-the quality
of information)
Demand arises because users are not in a position to establish the
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.
39
Mai Duc Nghia (UEH)
40
10
Principles of Auditing
4.2.3. Solutions?
Risky?
Consider these following
solutions?
Benefits of assurance
The users directly check the information
Characteristics of demand for assurance results in following
benefits:
Strengthen the legal responsivities of
the Board of Directors
• Increased relevance and reliability of assured information means that
shareholders and debtholders will invest with greater confidence,
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
41
42
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
43
Mai Duc Nghia (UEH)
44
11
Principles of Auditing
5. Auditors, Audit firms & Professional bodies
5.1. Auditors in Vietnam (1)
Reference: Textbook 1: Chapter 2
for Australia CPA
Chapter 2. AUDITORS AND PRACTICING AUDITORS
Article 14. Standards of auditors
1. Auditors must meet the following standards:
1. Auditors (Kiểm toán viên)
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. Audit firms (Doanh nghiệp kiểm toán)
3. Professional bodies (Hội Nghề Nghiệp)
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
5.1. Auditors in Vietnam (1)
Source: LAW ON INDEPENDENT AUDIT
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.
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. 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.
Source: LAW ON INDEPENDENT AUDIT
Mai Duc Nghia (UEH)
46
47
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.
48
12
Principles of Auditing
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)
 There are many levels of audit firms:
Article 4. Eligibility for taking exams
An applicant for audit practicing certificate or accounting practicing certificate must have the following
eligibilities:
1.
2.
3.
4.
5.
Meet standards in professional ethics, truthfulness, integrity, and high sense of law observance;
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
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
international audit or accounting associations as prescribed in Article 9 hereof;
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)
to the time of application for taking exams. Actual working time includes the period of working as audit
assistant at audit firms, as internal auditor at internal audit department, or as auditor at state audit
agencies;
Submit sufficient and required application for examination and exam fees as prescribed;
Not subject to Clause 1 and Clause 2 Article 52 of the Law on Accounting.
–
–
–
–
Big Four international firms
National firms
Regional and large local firms
Small local firms
 The largest international firms are known as the 'Big Four'. They are:
– PricewaterhouseCoopers
– EY
– KPMG
– Deloitte
 The Big Four dominate the practice of public accounting, especially for large listed clients.
49
5.2. Organizational Structure
50
5.2. Services provided by Audit firms
Assurance service
 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
 Limited liability company (Công ty TNHH)
Management consultancy
Other services
51
Mai Duc Nghia (UEH)
 Audit
 Review
 Tax consultancy
 Tax planning/reporting
 Financial consultancy
 Strategy development
 Education/Training
 Head hunting
52
13
Principles of Auditing
5.3. Professional bodies
Hierarchy of a Typical CPA Firm
 International professional bodies:
 The American Institute of CPAs (AICPA)
Breadth of Experience
Chủ phần hùn
Partners
10+ years
Chủ nhiệm
Managers kiểm toán
5-10
Seniors
Trưởng nhóm kiểm toán
Staff/Assistants
 The Association of Chartered Certified Accountants (ACCA)
2-5
 CPA Australia, and so on.
0-2
 In Vietnam
Vietnam Association of Certified Public Accountants – VACPA
(established in 2005 and started to operate from 1/1/2006)
Trợ lý kiểm toán
53
Mai Duc Nghia (UEH)
54
14