The assessment of risks of material misstatements of financial statements of vietnamese listed enterprises in the stage of audit planning - cases study at Ernst & Young Vietnam limited, 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

TRAN ANH THU

THE ASSESSMENT OF RISKS OF MATERIAL

MISSTATEMENTS OF FINANCIAL STATEMENTS OF

VIETNAMESE LISTED ENTERPRISES IN THE STAGE OF

AUDIT PLANNING - CASES STUDY

AT ERNST & YOUNG VIETNAM LIMITED

GRADUATION THESIS

MAJOR: ACCOUNTING

CODE: 52340301

HO CHI MINH CITY, 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

TRAN ANH THU

THE ASSESSMENT OF RISKS OF MATERIAL

MISSTATEMENTS OF FINANCIAL STATEMENTS OF

VIETNAMESE LISTED ENTERPRISES IN THE STAGE OF

AUDIT PLANNING - CASES STUDY

AT ERNST & YOUNG VIETNAM LIMITED

GRADUATION THESIS

MAJOR: ACCOUNTING

CODE: 52340301

SUPERVISOR

DANG DINH TAN

HO CHI MINH CITY, 2021

i

ABSTRACT

The purpose of research is to investigate the risks of material misstatements of

the financial statements in the stage of Audit Planning in Vietnamese listed enterprises

on stock market. Based on the audit procedures, the research was conducted using

qualitative approach to explore the strength and limitation of the process. It began with

observational and descriptive method to obtain procedures performed by EY Vietnam,

according to EY GAM. In order to acquire in depth knowledge about the points that

auditors should improve on in the stage of audit planning for the assessment of material

misstatement of Vietnamese listed enterprises, the research used questionnaire designed

for respondents at EY Vietnam.

Key words: Assessment, Risk of Material Misstatement, Financial Statements,

Audit Planning, Listed Enterprise, Ernst &Young Vietnam.

ii

DECLARATION OF AUTHENTICITY

I declare that all material presented in this paper is my own work or fully and

specifically acknowledged wherever adapted from other sources.

I understand that if at any time it is shown that I have significantly

misrepresented material presented here, any degree or credits awarded to me on

the basic of that material may be revoked.

I declared that all statements and information contained herein are true,

correct and accurate to the best of my knowledge and belief.

Ho Chi Minh City, June 2021

Tran Anh Thu

iii

ACKNOWLEDGEMENTS

Firstly, I would like to express my sincerest and deepest thankfulness to Dr

Dang Dinh Tan for his guidance and patience in giving me valuable

recommendations during my study period. I am really happy and fortunate to carry

out this study under his supervisor.

Secondly, I would like to send my profound gratitude to all of the lecturers in

Accounting and Auditing Department and also in Office of Academic Affairs

during a period of studying for a bachelor degree at Banking University of

Vietnam.

Lastly, I would like to thank my family for their support during my study and

during my life. Without whose encouragement and sacrifice, I would not have

finished this thesis, so I express my special love and gratitude to them.

Ho Chi Minh City, June 2021

Tran Anh Thu

iv

Contents

ABSTRACT......................................................................................................................i

DECLARATION OF AUTHENTICITY.........................................................................ii

ACKNOWLEDGEMENTS ........................................................................................... iii

LIST OF ABBREVIATIONS........................................................................................vii

LIST OF TABLES, FIGURES AND FORMULAS.................................................... viii

CHAPTER 1: INTRODUCTION ....................................................................................1

1.1 The necessity of the thesis......................................................................................1

1.2 Objectives of the research ......................................................................................2

1.4 Subjects and scope of the research.........................................................................3

1.5 The research methodology .....................................................................................3

1.6 Contributions of the research .................................................................................4

CHAPTER 2: THEORETICAL PERSPECTIVES..........................................................6

2.1 Overview about auditing financial statements. ......................................................8

2.2 Overview about auditing financial statements in the planning stage...................11

2.3 Overview of considerations of risks of material misstatements in the audit planning

....................................................................................................................................19

2.3.1 Definitions of risks of material misstatements in audit planning .....................19

2.3.2 The assessment of risks of material misstatements in audit planning ..............21

CHAPTER 3: METHODOLOGY .................................................................................28

3.1 Research methodology............................................................................................28

3.2 Source of data...........................................................................................................29

v

3.3 Data collection method ............................................................................................30

3.3.1 Observational and descriptive method..........................................................30

3.3.2 Questionnaire method ...................................................................................31

CHAPTER 4: FINDING AND DISCUSSION..............................................................33

4.1 Observation and descriptive method for the assessment of risks of material

misstatements in audit planning at EY Vietnam........................................................33

4.2 Research results of questionaires for the assessment of risks of material

misstatements in audit planning at EY Vietnam........................................................38

CHAPTER 5: CONCLUSION AND RECOMMENDATION .....................................54

5.1 Conclusion........................................................................................................54

5.1.1 The characteristics of the assessment of risks of material misstatements of

financial statements of Vietnamese listed lnterprises in the stage of audit planning

at EY Vietnam........................................................................................................54

5.1.2 The validity of the assessment of risks of material misstatements of financial

statements in Vietnamese listed companies in the stage audit planning at EY

Vietnam compared to ISA 300 and ISA 315 .........................................................55

5.1.3 Strengths of the assessment of risks of material misstatements of financial

statements in Vietnamese listed companies in the stage audit planning at EY

Vietnam..................................................................................................................57

5.1.4 Limitations of the assessment of risks of material misstatements of financial

statements in Vietnamese listed companies in the stage of audit planning at EY

Vietnam..................................................................................................................58

vi

5.2 Recommendations to improve the effectiveness of the assessment of risks of

material misstatements of financial statements in Vietnamese listed companies in

the stage audit planning at EY Vietnam.................................................................59

5.3 Limitations of the study and directions for future research .............................60

REFERENCES...............................................................................................................61

APPENDICES................................................................................................................66

vii

LIST OF ABBREVIATIONS

Abbreviations Full meaning

EY Ernst & Young

IAS International Accounting Standards

ROMM Risks of material misstatements

IFRS International Financial Reporting Standards

GAM Global Audit Methodology

ISA International Standard on Auditing

VSA Vietnamese Standards on Auditing

FS Financial statement

COSO Committee of Sponsoring Organizations

viii

LIST OF TABLES, FIGURES AND FORMULAS

Name Page

Figure 2.1: COSO internation control cube 17

Table 2.1: Considerations for identifying risk factors 21

Table 4.1: Ratio of responses to question 01 41

Table 4.2: Considerations for the control risk assessment process

of the entity’s system of internal control

42-45

Table 4.3: Ratio of responses to question 03 45-46

Table 4.4: Examples to determine the significant risks 47-48

Table 4.5: Examples of risk factors relating to

(Incentive/Opportunity/Attitude) generally present when material

misstatement due to fraud occurs

48-52

1

CHAPTER 1: INTRODUCTION

1.1 The necessity of the thesis

In the current market economy, auditing is one of sectors interested in and trust

by society. The demand for society for auditing profession is rapidly increasing which

require auditors and audit firms to improve both professional competence and audit

services. In the world, the collapse of Enron Energy Corporation, Worldcom, Tyco

International, Peregrine Systems, Olympus, and Health South Group resulted from fraud

of financial statements (Rahman, Meah, & Chaudhory, 2018). When performing the

audit contract, auditing firms did not detect the material misstatement from frauds, so

opinions on the financial statements are inaccurate, which seriously affect the users and

reputation of audit firms. The reason is that auditors often face difficulties in applying

audit procedures to detect risks of material misstatements in auditing financial statements

(Coderre, 1999; Dikmen & Küçükkocaoğlu, 2010). The audit report is the basis for a

third party to search for information and make its investment decisions. In the growing

economic situation, the need to expand the scale and business fields is rapid. As a result,

the complexity of accounting and auditing in enterprises listed on stock market is also

more. Therefore, auditors are also difficult to detect fraud in the financial statements. In

addition, audit firms have not focused on evaluating control risks, potential risks, and

internal control system, but mainly based on subjective opinions of auditors, and pressure

on the time to complete auditor‘s work. On the other hand, audit firms, which want to

survive and develop, are also under pressure on revenue and competition. Therefore, the

quality and duration of the audit have a great influence on the choices of clients.

Assessing the risks of material misstatements in the audit plays an important role

especially in the audit planning stage, which has a decisive influence on the quality of

the audit. The stage is a crucial part and takes a lot of time. Therefore, a reasonable and

scientific risk assessment of material misstatement in auditing financial statements

should be paid attention and monitored by audit firms in the planning process.