Accounts payable auditing in financial audits conducted by KPMG Company Limited

BANKING ACADEMY

FACULTY OF ACCOUNTING - AUDITING

GRADUATION THESIS

ACCOUNTS PAYABLE AUDITING IN FINANCIAL AUDITS

CONDUCTED BY KPMG COMPANY LIMITED

Student: Do Thi Nhan

Class: K22CLCE

Course: 2019-2023

Student ID: 22A4020052

Supervisor: PhD. Pham Thi Tuyet Minh

Ha Noi, May 2023

BANKING ACADEMY

FACULTY OF ACCOUNTING - AUDITING

GRADUATION THESIS

ACCOUNTS PAYABLE AUDITING IN FINANCIAL AUDITS

CONDUCTED BY KPMG COMPANY LIMITED

Student: Do Thi Nhan

Class: K22CLCE

Course: 2019-2023

Student ID: 22A4020052

Supervisor: PhD. Pham Thi Tuyet Minh

Ha Noi, May 2023

Banking Academy Graduation Thesis

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Do Thi Nhan 2023

STATUTORY DECLERATION

I hereby confirm that the submitted Bachelor Graduation Thesis was independently

written by me. This is my own research. Except for the literature that I referenced and

the other references included at the end of this paper, I did not rely on any outside

sources.

I clearly marked and separately listed all the literature and all other sources which I

employed producing this academic work, either literally or in content.

Hanoi, May 2023

Student

Do Thi Nhan

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ACKNOWLEDGEMENT

In the process of completing this bachelor thesis, I have received a great deal of kindly

support, guidance, and encouragement from dedicated lecturers over the course of my

four years of study at Banking Academy, as well as helpful advice from mentors and

other colleagues during my four-month internship at KPMG Vietnam Limited.

First of all, I want to express my sincere gratitude to my supervisor, PhD. Pham Thi

Tuyet Minh, who gave me valuable advice on how to approach the research and assisted

me in completing my thesis on time and efficiently. She also gives me valuable advice,

helpful comments as well as correction to my paper.

Secondly, I would like to express my gratitude to all lecturers in the Faculty of

Accounting and Auditing for their lectures of many courses that help me much in shaping

a solid knowledge foundation of accounting and auditing for completing this thesis

specifically.

Last but not least, I would like to thank my friends, my seniors who have supported and

encouraged me throughout the completion of this graduation thesis.

Hanoi, May 2023

Student

Do Thi Nhan

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TABLE OF CONTENT

STATUTORY DECLERATION...............................................................................................................i

ACKNOWLEDGEMENT ........................................................................................................................ii

TABLE OF CONTENT...........................................................................................................................iii

LIST OF ABBREVIATIONS..................................................................................................................vi

LIST OF DIAGRAMS...........................................................................................................................viii

LIST OF TABLES...................................................................................................................................ix

LIST OF FIGURES ..................................................................................................................................x

INTRODUCTION...................................................................................................................................1

1. Rationale for the study ..................................................................................................................1

2. Literature review...........................................................................................................................2

3. Objective of the research...............................................................................................................4

4. Object and scope of the research...................................................................................................4

6. Research method ...........................................................................................................................4

7. Structure of the thesis....................................................................................................................5

CHAPTER 1: THEORETICAL BASIS FOR AUDITING ACCOUNTS PAYABLE IN

FINANCIAL STATEMENTS................................................................................................................7

1.1. Characteristics of account payable of clients affecting financial audits.............................7

1.1.1. Definition and nature of accounts payable........................................................................7

1.1.2. Accounting for accounts payable ......................................................................................9

1.1.3. Common misstatement related to accounts payable....................................................... 13

1.1.4. Internal control over accounts payable........................................................................... 14

1.2. Audit procedures of accounts payable in auditing financial statements......................... 17

1.2.1. Audit objectives of auditing accounts payable in financial audits................................. 17

1.2.2. Planning the audit........................................................................................................... 18

1.2.3. Implementing the audit .................................................................................................. 24

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1.2.4. Completing the audit...................................................................................................... 30

CONCLUSION OF CHAPTER 1....................................................................................................... 34

CHAPTER 2: CURRENT STATUS OF THE ACCOUNTS PAYABLE AUDITING IN

FINANCIAL AUDITS CONDUCTED BY KPMG VIETNAM...................................................... 35

2.1. Overview of KPMG Company Limited .................................................................................. 35

2.1.1. The establishment and growth process................................................................................. 35

2.1.2. Main business areas of KPMG............................................................................................. 37

2.1.3. Mechanism of organization structure................................................................................... 39

2.1.4. Audit procedures of financial statements conducted by KPMG .......................................... 41

2.2. Accounts payable auditing in financial audits conducted by KPMG Company Limited... 47

2.2.1. Overview of process of auditing account payable of KPMG............................................... 47

2.2.2. Process of auditing account payable for ABC company conducted by KPMG................... 59

2.3. Assessment of the audit of accounts payable in financial audits conducted by KPMG Limited

............................................................................................................................................................ 79

2.3.1. Advantages........................................................................................................................... 79

2.3.2. Disadvantages ...................................................................................................................... 82

CONCLUSION OF CHAPTER 2....................................................................................................... 86

CHAPTER 3: RECOMMENDATIONS FOR IMPROVING THE AUDIT OF ACCOUNTS

PAYABLE IN FINANCIAL AUDITS CONDUCTED BY KPMG VIETNAM............................. 87

3.1. Oriented development of the company.................................................................................... 87

3.2. The requirement for improving the accounts payable auditing procedures....................... 88

3.3. Recommendations for improving the audit of accounts payable in financial audits process

conducted by KPMG Limited......................................................................................................... 90

3.3.1. Planning the audit................................................................................................................. 90

3.3.2. Implementing the audit ........................................................................................................ 90

3.3.3. Completing the audit............................................................................................................ 92

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3.4. Conditions for implementation of recommendations ............................................................ 92

CONCLUSION OF CHAPTER 3....................................................................................................... 94

CONCLUDE......................................................................................................................................... 95

REFERENCES..................................................................................................................................... 96

APPENDIX........................................................................................................................................... 97

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LIST OF ABBREVIATIONS

AMPT Audit Misstatement Posting Threshold

AFD Accounting and Finance Department

AP Accounts payable

BOD Board of Director

CA Chief Accountant

Company Limited Co., Ltd

GRN Good receipt note

HOM Hand-over minute

IAS International Accounting Standard

IFAC International Federation of Accountant

ISA International Standard on Auditing

IT Information Technology

JSC Joint Stock Company

KAEG KPMG Audit Execution Guide

KCw KPMG Clara workflow

KPMG KPMG Company Limited

M Materiality

MIC Manager in-charge

MOF Ministry of Finance

OM Operating Manager

PBC Provided by Client

PBTCO Profit before Tax from Continuing Operations

PM Performance Materiality

PO Purchase Order

SIC Senior in-charge

TOC Test of Control

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TOD Test of Details

VACPA Vietnam Association of Certified Public Accountants

VAS Viet Nam Accounting Standard

VSA Viet Nam Standard on Auditing

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LIST OF DIAGRAMS

Diagram Page

Diagram 1.1: Bookkeeping of Accounts payable 12

Diagram 2.1: Audit procedure at KPMG Vietnam 43

Diagram 2.2: Quality control process at KPMG Vietnam Company Limited 46

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LIST OF TABLES

Table Page

Table 1.1: Audit objectives of Accounts payable 17

Table 1.2: TOC of Accounts payable 26

Table 1.3: TOD of Accounts payable 29

Table 2.1: Client acceptance process of KPMG 48

Table 2.2: Materiality base selection 54

Table 2.3: Guidance on determining materiality ratio according to KAEG 55

Table 2.4: Ratio of Performance Materiality 56

Table 2.5: TOD of ABC JSC accounts payable 57

Table 2.6: Audit team in the audit of ABC JSC 60

Table 2.7: Preliminary analytical procedures of ABC JSC 63

Table 2.8: Key financial indicators of client 66

Table 2.9: Assessed materiality for client 67

Table 2.10: Substantive analytical procedures- Trend analysis 69

Table 2.11: Substantive analytical procedures- Ratio analysis 70

Table 2.12: Lead sheet of Accounts payable ABC JSC 71

Table 2.13: Side accounts of Account 331 72

Table 2.14: Breakdown of Account 331 73

Table 2.15: List of sending confirmation letters 74

Table 2.16: Search for Unrecorded liabilities 75

Table 2.17: Revaluation of foreign payable amount 76

Table 2.18: Purchase cut-off testing 76

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LIST OF FIGURES

Figure Page

Figure 1.1: Business functions in the acquisition and payment cycle 15

Figure 2.1: Organization structure of KPMG Vietnam 39