Audit of accounts receivable in financial auditing performed by KPMG Vietnam Company Limited

BANKING ACADEMY

ADVANCED PROGRAM

-------***-------

BACHELOR THESIS

Major: Auditing

TOPIC: AUDIT OF ACCOUNTS RECEIVABLE IN

FINANCIAL AUDITING PERFORMED

BY KPMG VIETNAM COMPANY LIMITED

Student : Doan Thi Thuy

Student ID : 22A4050145

Class : K22CLCG

Supervisor : Dr. Nguyen Thi Phuong Thao

Hanoi, 23 May 2023

BANKING ACADEMY

ADVANCED PROGRAM

-------***-------

BACHELOR THESIS

Major: Auditing

TOPIC: AUDIT OF ACCOUNTS RECEIVABLE IN

FINANCIAL AUDITING PERFORMED

BY KPMG VIETNAM COMPANY LIMITED

Student : Doan Thi Thuy

Student ID : 22A4050145

Class : K22CLCG

Supervisor : Dr. Nguyen Thi Phuong Thao

Hanoi, 23 May 2023

i

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Bachelor

Thesis independently. I did not use any outside support except for the quoted

literature and other sources mentioned at the end of this paper.

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

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

Hanoi, 23/05/2023

Signature

Doan Thi Thuy

ii

ACKNOWLEDGEMENT

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

of kindly support, guidance, and encouragement from dedicated lecturers throughout

four years studying at Banking Academy, along with helpful advice of mentors and

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

First of all, I would like to express my deepest thanks to my supervisor, Dr.

Nguyen Thi Phuong Thao, who gave me helpful suggestions on how to shape the

study and helping me complete my essay easily and effectively on time. 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 School 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.

Finally, I would like to thank my friends, my seniors who have always

encouraged and helped me to complete this bachelor thesis.

Due to limited capacity and a lack of time to approach reality, my thesis cannot

avoid certain errors. I'm looking forward to hearing from lecturers about how to

improve this topic. Sincerely thank you!

Hanoi, 23/05/2023

Signature

Doan Thi Thuy

iii

TABLE OF CONTENT

STATUTORY DECLARATION.................................................................................i

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

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

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

LIST OF DIAGRAMS..............................................................................................vii

LIST OF FIGURES AND TABLES................ Error! Reference source not found.

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

1. The rationable ................................................................................................1

2. Literature reviews ..........................................................................................2

3. Research objectives........................................................................................5

4. Research scope and research subject .............................................................5

5. Research questions.........................................................................................6

6. Research methodology...................................................................................6

7. Research structure ..........................................................................................7

CHAPTER 1: THEORETICAL BASIS FOR AUDIT OF ACCOUNTS

RECEIVABLE IN THE FINANCIAL AUDITING...................................................8

1.1. Characteristics of accounts receivable affecting the audit of financial

statements.................................................................................................................8

1.1.1. Definition and nature of accounts receivable .........................................8

1.1.1.1. Definition .........................................................................................8

1.1.1.2. Nature of accounts receivable .........................................................9

1.1.2. Accounting for account receivable .........................................................9

1.1.2.1. Accounting principles of accounts receivable .................................9

1.1.2.2. Accounts used for receivables........................................................11

1.1.2.3. Relevant slips and documents........................................................11

1.1.3. Common mistatements in auditing accounts receivable.......................13

1.1.4. Internal controls over account receivable .............................................14

1.2. The process of audit of accounts receivable in financial auditing...............18

1.2.1. Objectives of audit of accounts receivable in the financial auditing

process ...............................................................................................................18

1.2.2. Planning the audit .................................................................................19

1.2.2.1. Assess the audit acceptability ........................................................19

1.2.2.2. Selecting the audit team and prepairing the audit engagement ....19

iv

1.2.2.3. Understand the client and its environment ....................................21

1.2.2.4. Performing analytical procedures.................................................22

1.2.2.5. Internal control and risk assessment .............................................23

1.2.2.6. Determination of materiality..........................................................25

1.2.3. Implementing the audit .........................................................................26

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

1.2.4.1. Synthesize and process audit results

and post-audit issues and data.....................................................................30

1.2.4.2. Summary of audit results................................................................30

CHAPTER 2: AUDIT OF ACCOUNTS RECEIVABLE IN THE PROCESS OF

AUDITING FINANCIAL STATEMENTS BY KPMG VIETNAM COMPANY

LIMITED ..................................................................................................................33

2.1. Overview of KPMG Vietnam Company Limited........................................33

2.1.1. Company formation and development..................................................33

2.1.2. Functions, duties, and main business lines...........................................34

2.1.2.1. Audit and Assurance Services........................................................35

2.1.2.2. Taxation Consultancy Service........................................................35

2.1.2.3. Financial and business consulting services...................................36

2.1.3. Organization of Management Apparatus..............................................37

2.1.4. The process of auditing general financial statements conducted by

KPMG Vietnam Company Limited ...................................................................39

2.1.4.1. The process of auditing general financial statements conducted by

KPMG Vietnam Company Limited ..............................................................39

2.1.4.2. Audit quality control system...........................................................41

2.2. Audit of Accounts Receivable in financial auditing performed by KPMG

Vietnam Company Limited ...................................................................................42

2.2.1. Overview of Audit of Accounts Receivable of financial auditing

performed by KPMG Vietnam Company Limited.............................................42

2.2.1.1. Planing the audit............................................................................43

2.2.1.2. Implementing the audit...................................................................50

2.2.1.3. Completing the audit......................................................................55

v

2.2.2. Audit of Accounts Receivable of financial auditing performed by

KPMG Vietnam Company Limited at a specific client .....................................57

2.2.2.1. Planning the audit..........................................................................57

2.2.2.2. Implementing the audit plan ..........................................................65

2.3. Assessment of audit of receivables in the financial auditing performed by

KPMG Vietnam Company Limited.......................................................................88

2.3.1. Advantages............................................................................................88

2.3.1.1. In the planning the audit ................................................................88

2.3.1.2. In the implementing the audit ........................................................90

2.3.1.3. In the completing the audit ............................................................90

2.3.2. Limitations............................................................................................92

2.3.2.1. Limitations in planning the audit...................................................92

2.3.2.2. Limitations in the implementing the audit .....................................92

2.3.2.3. Limitations in the completing the audit

and issuing the audit report .........................................................................94

CHAPTER 3: SUGGESTIONS TO IMPROVE THE AUDIT OF ACCOUNTS

RECEIVABLE IN THE PROCESS OF AUDITING FINANCIAL STATEMENTS

PERFORMED BY KPMG VIETNAM COMPANY LIMITED..............................95

3.1. Development direction of KPMG Vietnam Company Limited...................95

3.2. The need for improving the audit of accounts receivable in the financial

auditing performed by KPMG Vietnam Company Limited..................................96

3.3. Recommendations to improve the audit of accounts receivable in the

financial auditing performed by KPMG Vietnam Company Limited...................97

3.3.1. About planning the audit.......................................................................97

3.3.2. About implementing the audit ..............................................................98

3.3.3. About completing the audit and issuing the audit report......................99

CONCLUSION.......................................................................................................101

REFERENCES........................................................................................................102

APPENDIX.............................................................................................................103

vi

LIST OF ABBREVIATIONS

Co.

Ltd.

Assoc.

Dr.

No.

VAS

VAT

Acct.

KAEG

M

PM

AMPT

Min

SIC

WP

Company

Limited

Associate

Doctor

Number

Vietnamese Accounting Standard

Value added tax

Account

KPMG Audit Execution Guide

Materiality

Performance Materiality

Audit Misstatement Posting Threshold

Minimum

Senior in-charge

Working paper

vii

LIST OF DIAGRAMS

Diagram 1.1: Chart of accounts receivable ...............................................................12

Diagram 2.1: Organization of Management Apparatus of

KPMG Vietnam Company Limited ..........................................................................37

Diagram 2.2: Process of auditing general financial statements of KPMG ...............40

vii

LIST OF FIGURES AND TABLES

List of Figures

Figure 2.1: WP 1600 – Preliminary analytical procedures for accounts receivable.62

Figure 2.2: WP 1829 – Determine the internal control for receivables....................67

Figure 2.3: WP 5300 – Summary of client’s accounts receivable ............................70

Figure 2.4: WP 5300 – Summary of client’s accounts receivable ............................71

Figure 2.5: WP 5300 – Breakdown of client’s accounts receivable .........................73

Figure 2.6: Audit confirmation form for AR of ABC Company ..............................78

Figure 2.7: WP 5300 – Aging report.........................................................................80

Figure 2.8: WP 5300 – Selecting samples for the examination of aging report

procedures .................................................................................................................81

Figure 2.9: WP 5300 – Recalculation of provisions for doubtful debts ...................83

Figure 2.10: WP 5300 – Re-evaluation of exchange rate of accounts receivable ....85

List of Tables

Table 1.1: Audit objectives of accounts receivable ...........................................................18

Table 1.2: Table of Estimated Materiality Thresholds.....................................................25

Table 1.3: Test of control..........................................................................................................27

Table 2.1: Guide on determining materiality ratio according to KAEG......................48

Table 2.2: Factors affecting materiality ratio ......................................................................49

Table 2.3: Test of details for accounts receivable..............................................................51

Table 2.4: Audit team in the audit of client ABC.....................................................58

Table 3.1: Audit quality assessment questionnaire............................................................99

1

INTRODUCTION

1. The rationale

Vietnam's economy is increasingly developing and integrating, but it is also

affected by unpredictable fluctuations due to the global economic crisis. Independent

audit is considered as one of the highly professional service industries and plays a

great role in creating a transparent and effective business environment. In the context

of global integration, foreign audit firms have entered the Vietnamese market and the

growth of the quantity and quality of auditing firms in Vietnam shows the

competitiveness in the industry. This is both an opportunity and a challenge for all

auditing firms. To be able to affirm their position and stand firm in such a competitive

market, auditing firms must constantly develop audit techniques that are both

effective and cost-effective and improve quality to meet actual needs.

KPMG Co., Ltd. has recognized that auditing is a component part of economic

management tools, it is becoming more and more important and necessary not only

for functional management agencies of the state, but also for business managers and

investors. The information provided by the audit will be a reliable basis for the State

to recognize, evaluate and properly handle arising economic problems, and at the

same time serve as a basis for investors, and managers when making new business

decisions. Through the performance of their functions and operations, auditors also

help businesses and economic organizations to know and overcome errors and

violations in management and in compliance with policies and economic laws of the

State.

Accounts receivable from customers is a material item and accounts for a large

proportion of the financial statements and is also quite sensitive to fraud and closely

related to the business results of the enterprise. Accounts receivable is an important

concept in accounting and finance. It refers to the amount of money that a company

is owed by its customers for goods or services that have been delivered but not yet

paid for. In other words, it represents the money that a company expects to receive in

the future.

2

Accounts receivable is a key component of a company's working capital,

which is the amount of money that is available to the company to fund its day-to-day

operations. The faster a company can collect its accounts receivable, the more

working capital it will have available to invest in growth opportunities, pay down

debt, or return to shareholders through dividends or share buybacks.

However, managing accounts receivable can be challenging for companies, as

it involves balancing the need to collect payment with the need to maintain good

customer relationships. Too aggressive a collection policy can damage customer

relationships, while too lax a policy can harm the company's cash flow and financial

stability.

Overall, accounts receivable is an important metric for assessing a company's

financial health and liquidity, and it is closely monitored by investors, creditors, and

analysts.

Realizing the important role of this item, I delve into the process of auditing

customer receivables in the audit of financial statements, based on the theory gained,

combined with the opportunity to continue Approaching the actual audit work during

my internship at KPMG Co., Ltd., I chose the topic: "Audit of accounts receivable

in financial auditing performed by KPMG Vietnam Company Limited”.

2. Literature reviews

"Auditing Accounts Receivable" is a significant research study that examines

and improves the auditing procedures applied in determining accounts receivable

from customers of an organization. The objective of this topic is to help organizations

enhance their auditing procedures and ensure the accuracy and completeness of

financial information related to accounts receivable from customers. There have been

many research studies on the auditing procedures for accounts receivable from

customers that have yielded significant research results. For example:

Foreign research

"Auditing Accounts Receivable and Revenue" by Michael Ramos, Elizabeth

Carson, and Greg Gaynor (2016) discusses the process of auditing accounts

3

receivable and revenue of businesses. The authors introduce the steps for auditing

accounts receivable from customers and the complex issues that may arise during the

process. The article also addresses the auditing of revenue, related financial statement

analysis, and auditing methods.

Jennifer Joe and Thomas J. Lopez also contributed with the research article

"The Impact of Audit Quality on Accounts Receivable Collection Efforts" (2019).

This study examines the impact of audit quality on a company's accounts receivable

collection efforts. The authors used data from publicly traded companies in the US

stock market and concluded that audit quality has a significant impact on a company's

accounts receivable collection efforts. In 2018, Nathaniel S. L. Fay, Jr. published the

research article "Auditing Accounts Receivable: The Role of Confirmations and

Analytics". This study focuses on the role of auditing methods such as confirmations

and data analysis in auditing accounts receivable. The author provides

recommendations for auditors to optimize the use of these tools to increase

effectiveness and accuracy in the auditing process.

Domestic research

For domestic researches, we can mention the topic "Analysis of factors

affecting the quality of auditing accounts receivable at auditing companies in

Vietnam" by author Le Thi Thu (National Economics University). This research used

descriptive and multivariate analysis to evaluate the level of influence of different

factors, including those related to auditing firms, auditors, and customers, on the

quality of auditing accounts receivable in Vietnam. The results of the study showed

that there are many factors that affect the quality of auditing accounts receivable,

including the experience of auditors, the quality of management of auditing firms, the

quality of audit documentation, and the reliability of information from customers.

Based on these findings, the author made some recommendations to improve the

quality of auditing accounts receivable in auditing firms in Vietnam. Author Le Van

Hieu (National Economics University) also contributed to the research "Assessing

the quality of audit of accounts receivable at commercial enterprises in Vietnam".

The author used multivariate analysis to evaluate the impact of various factors,