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Complete the Identification of Audit Objects and Objectives


Further improvement in each group of solutions for this group of auditing enterprises. The solutions to improve the audit of commercial bank financial statements will be presented specifically by the author as follows:

3.3.1. Complete the identification of audit subjects and objectives

Complete the identification of audit subjects

Meaning of this solution : Correctly identifying the audit subject will help auditors and auditing firms correctly identify the objectives, content, basis, process and techniques for collecting evidence in auditing commercial bank financial statements.

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For both Big Four and non-Big Four audit firms:

With the current situation and limitations mentioned above related to determining the subjects of auditing financial statements of commercial banks, in the practice of auditing financial statements of commercial banks, both groups of auditing firms need to pay more attention to the Cash Flow Statement of commercial banks. In addition, auditing firms also need to limit and gradually not support commercial banks in preparing Cash Flow Statement, explanatory notes to financial statements and consolidated financial statements of commercial banks and their subsidiaries. This solution brings the following effects to the audit of financial statements of commercial banks:

Complete the Identification of Audit Objects and Objectives

- Cash flow statement is also an inseparable part of the financial statements to reflect a comprehensive picture of the financial situation of the commercial bank, so auditors also need to pay attention to checking to give opinions on reliability assessment. Moreover, for a commercial bank which is an enterprise specializing in the monetary sector, the Cash flow statement is even more important. The Cash flow statement reflects the cash flows in a business cycle of a commercial bank; helping information users know from which sources the commercial bank has generated money and spent it on what purposes, thereby helping to assess the ability to pay debts and dividends of the commercial bank; The Cash flow statement also provides additional information to assess the performance in the current period and forecast the prospects of the commercial bank in the future or forecast difficulties in paying debts as well as paying dividends to investors through analyzing indicators such as Interest income and similar income received in the period; Interest expenses and similar expenses paid; Purchase of fixed assets; Purchase of investment real estate; Increase in equity capital from capital contribution and/or issuance of shares... Through analyzing the cash flow statement, auditors can also assess the ability of commercial banks to continue operating.

- The fact that auditors limit and eventually do not support commercial banks in preparing Cash Flow Statements, Notes to Financial Statements and Consolidated Financial Statements will ensure the independence and objectivity of the audit, thereby increasing the trust of users of audit results in the audit report and at the same time improving the qualifications and responsibilities of the accounting team and the Board of Directors of commercial banks in preparing and presenting commercial banks' financial statements in accordance with current relevant regulations.

Complete the definition of audit objectives


Meaning of the solution : Audit objectives are the direction for performing procedures and determining techniques for collecting audit evidence. Determining the correct objectives will help the auditor determine the correct path, approach and implementation of the audit to ensure that sufficient information and appropriate evidence are collected to give a correct confirmation opinion on the audit subject.

For both Big Four and non-Big Four audit firms:

With the current situation and limitations mentioned in Chapter 2 related to determining the objectives of auditing commercial bank financial statements, auditing firms need to add more related detailed objectives to help auditors fulfill their responsibilities in auditing commercial bank financial statements in compliance with the requirements of CMKit Vietnam. These objectives also need to be recorded in the Handbook/Guideline on auditing commercial bank financial statements of auditing firms. Specifically, the following objectives are included:

Review of compliance with laws and regulations of commercial banks related to the audit of commercial bank financial statements:

Commercial banks are also a type of enterprise and must also comply with the law and regulations in the course of their business operations. However, commercial banks are enterprises operating in a specific field, so they must comply with many legal documents issued by competent authorities as well as documents issued by superiors, professional organizations and commercial banks themselves that are not contrary to the law. In general, the regulations that commercial banks must comply with include: regulations on legal capital; on lending procedures of commercial banks; on limits and safety ratios in the operations of commercial banks (minimum capital safety ratio, credit limit; solvency ratio; capital contribution limit, share purchase limit, loan balance ratio compared to total deposits); maximum ratio of short-term capital for medium-term and long-term lending; on debt trading regulations of commercial banks; on compulsory reserve ratio for foreign currency; on deposit insurance; on open market operations regulations; on mortgaged assets; regulations on mobilization interest rates; regulations on asset classification, provision levels, methods of establishing and using risk reserves of commercial banks; statements of the Basel Committee on banking supervision...

Therefore, the auditor's determination and clear recording of the audit objectives regarding the review of compliance with laws and regulations in auditing commercial bank financial statements in the Handbooks/Instructions as well as related Working Papers will help the auditor in the process of auditing commercial bank financial statements better, specifically helping the auditor fully and comprehensively identify responsibilities and tasks that need to be done as well as identify the audit procedures that need to be performed to fulfill the responsibilities and objectives set out such as:

- Collect sufficient appropriate audit evidence related to compliance with the provisions of laws and regulations that directly affect the determination of material figures and disclosures in the financial statements of commercial banks;


- Carry out specific audit procedures to detect acts of non-compliance with laws and other regulations that may have a material impact on the financial statements of commercial banks (for example, land law, civil law, international trade terms Incoterms when commercial banks carry out international payment activities...);

- Take appropriate action against any non-compliance or suspected non-compliance with laws and regulations discovered during the audit.

Objectives to identify issues to discuss with the Board of Directors of the commercial bank:

According to the provisions of Vietnam CMKit No. 260, Discussing issues with the Board of Directors of the audited entity, the auditor and the auditing firm must promptly notify the Board of Directors of the commercial bank of any noteworthy issues that the auditor knows when conducting the audit related to the responsibility of supervising the preparation and presentation of financial statements of the Board of Directors of the commercial bank, and at the same time enhance the effectiveness of two-way information exchange between the auditor and the auditing firm with the Board of Directors of the commercial bank.

Therefore, if the auditing firm identifies and clearly states the audit objectives regarding issues that need to be discussed with the Board of Directors of the commercial bank in the Handbooks/Instructions as well as related Working Papers, it will help the auditor better fulfill his/her responsibilities in the audit of the financial statements of the commercial bank, specifically helping the auditor fully and comprehensively identify the responsibilities and tasks that need to be done related to the issues that need to be discussed with the Board of Directors of the commercial bank as follows:

- The auditor's responsibilities in the audit of the financial statements of a commercial bank include: giving opinions on the financial statements of a commercial bank prepared and presented by the Board of Directors of a commercial bank under the supervision of the Board of Directors of a commercial bank; clearly communicating with the Board of Directors of a commercial bank that the audit of the financial statements of a commercial bank does not reduce the responsibilities of the Board of Directors or the Board of Directors of a commercial bank;

- Scope and schedule of planned audits;

- Important findings when conducting audits on issues such as: Explaining to the Board of Directors about the inappropriateness of accounting policies, accounting estimates used by the unit's Board of Directors; particularly sensitive information disclosed on the commercial bank's financial statements such as information related to continuous operations, events arising after the end of the accounting period, potential assets and liabilities...; potential impacts on the financial statements from significant risks, clear or uncertain events such as lawsuits pending court adjudication...

- Important issues arising during the audit process need to be explained in writing by the Board of Directors and Management, for example: Business conditions affecting the commercial bank, the commercial bank's business strategy and plan may lead to risks of material misstatement;

- Auditor independence. In case a commercial bank is a listed organization, the auditor must discuss with the unit's Board of Directors issues related to independence such as: Compliance with standards and regulations on professional ethics related to the independence of the audit team and other individuals in the audit firm, of the audit firm and network companies.


network; All relationships and related issues between the audit firm, the network company and the commercial bank that, in the auditor's professional judgment, may affect the auditor's independence; Safeguards have been applied to limit the threat to the auditor's independence or to reduce this threat to an acceptable level.

Discuss deficiencies in internal control with the Board of Directors and the Board of Management of the commercial bank.

Although CMKit Vietnam does not require auditors to express their opinions on the effectiveness of internal control, in the process of conducting a financial statement audit, specifically in the process of risk assessment, auditors must consider internal control to design audit procedures appropriate to the reality of the commercial bank (Paragraph 02, CMKit 265, Discussion of deficiencies in internal control with the Board of Directors and the Board of Management of the audited unit ). And when auditors discover and assess that there are serious deficiencies in internal control, auditors must promptly discuss with the Board of Directors and the Board of Management of the commercial bank about these serious deficiencies. This is entirely the responsibility of auditors and auditing firms within the scope of the financial statement audit, not within the independent audit of internal control activities of the commercial bank.

Therefore, the auditor's determination and clear recording of detailed audit objectives regarding the identification and communication of serious deficiencies in internal control that the auditor has discovered during the audit in the Manuals/Guidelines as well as related Working Papers will help the auditor better fulfill his/her responsibilities in the audit of the financial statements of commercial banks. In addition, this also helps the auditor to prepare a high-quality " Management Letter " and bring practical values ​​to the commercial bank to improve the management efficiency of the commercial bank through the auditor's discovery of serious limitations and deficiencies in the internal control of the commercial bank and possibly also make suggestions and recommendations to help the commercial bank improve and overcome those limitations. At the same time, this also ensures that the Management Letter meets the requirements under the provisions of current law in Article 10, Circular 39/2011/TT/NHNN on Independent Audit Results. Article 10 clearly stipulates the results of independent audits of credit institutions and foreign bank branches, including: “ Audit reports; Management letters and related documents and evidence ”. The specific contents of the Management Letter include risks that may have a material impact on the financial statements and internal control of commercial banks and the independent auditing organization’s proposed adjustments to incidents and events that have or may have a material impact on the financial statements and internal control activities of commercial banks, etc.

Note for Auditing Firms Outside the Big Four

In addition to the above contents that need to be completed, auditing firms outside the Big Four need to develop specific audit objectives for key items on the financial statements of commercial banks and record them in the Handbook/Guideline on auditing financial statements of commercial banks to help auditors conduct audits to ensure consistency, efficiency, and quality.


quantity. Below are some specific databases that auditors need to focus on auditing for the main items on the financial statements of commercial banks:

- Balance at other credit institutions: Existence, Evaluation, Presentation and explanation;

- Instruments in the money market: Existence, Rights and obligations, Evaluation, Accuracy;

- Trading securities: Existence, Rights and obligations, Valuation and accuracy;

- Investment in subsidiaries and associates: Evaluation;

- Credit: Existence, Evaluation, Presentation and Explanation;

- Customer deposits: Completeness, Presentation and explanation, existence of money in transit;

- Capital and funds: Presentation and explanation

- Provisions, contingent assets and contingent liabilities: Completeness; Evaluation; Presentation and disclosure.

- Derivatives and off-balance sheet financial instruments: Rights and obligations, Existence, Completeness; Evaluation; Accuracy; Presentation and disclosure;

- Interest income and expense: Calculate accurately;

- Loan risk provision: Completeness, Accuracy; Presentation and explanation.

- …

Auditors also need to note that determining detailed audit objectives is both general and relative. General because: for each type of information, it is necessary to collect sufficient appropriate audit evidence for these objectives. When the auditor has sufficient appropriate audit evidence for these objectives, there is enough basis to draw specific conclusions. Relative because: The identified objectives are not immutable or rigid. The quantity as well as the specific objectives can change according to the characteristics of each type of audit information, according to the auditor's level of understanding and the level of risk and materiality in each specific commercial bank. That means, for different items, the specific audit objectives that need to collect audit evidence to prove are not the same.

3.3. 2. Complete the determination of audit content

Meaning of the solution : Correctly determining the audit content will help the auditor and the audit firm assigned to audit that content understand the audit objectives, the tasks to be completed after the audit is completed, and the audit evidence must be collected to give comments on which indicators on the financial statements. From there, proactively and consistently develop the audit plan and detailed audit program for related items, and thus the audit will be of higher quality and more effective.


For Big Four Audit Firms

In the coming time, Big Four auditing firms need to specify the audit content according to each business activity of commercial banks and document it in the Handbook/Guideline on auditing financial statements of commercial banks of their company as a basis for auditors to implement. The audit content determined according to the business activities of commercial banks can be determined similarly in Table 1.2. Determining the audit content according to the business activities of commercial banks that the author presented in Chapter 1 .

For Audit Firms Outside the Big Four

Audit firms outside the Big Four should shift from an item-based approach to a process-based approach to determining audit content. This will help audit firms outside the Big Four achieve high audit efficiency for the following reasons:

- Reduce costs and time spent auditing duplicate content;

- In line with the current development trend of the banking industry. According to the current trend, the scale of commercial banks is increasingly expanding; the operations of commercial banks are increasingly diverse, leading to increasingly rich, complex and specific banking operations, always fluctuating according to the general changes of the economy and the volume of operations and transactions is often very large, so the use of the item-based approach is no longer suitable and effective.

- Consistent with the results of the assessment of the effectiveness of internal control according to each main business activity of the commercial bank as guided in the VAPCA Model Audit Program. According to VACPA's guidance, when assessing internal control to make an audit plan, the auditing firm will study the accounting policies and business activities (main business activities) of the audited unit to ensure systematicity and effectiveness, not considering internal control separately according to each accounting account. Thus, the method of determining the audit content according to items is not consistent with VACPA's guidance and the risk-based audit approach, which is a modern audit method and suitable for auditing the banking sector.

Thus, determining the audit content according to the cycle method will help the auditor to develop an effective audit strategy in combining the compliance audit method and the basic audit method. Specifically, if the auditor assesses which business activities of the commercial bank are operating effectively, the auditor can narrow down the scope of applying detailed tests to the transactions, balances and explanations related to that cycle/type of activity. In particular, as analyzed in the above contents, the internal control of the commercial bank is assessed to be quite good, so it is necessary to make the most of control tests to reduce the audit workload in the departments that have


Effective internal control, low risk. This also helps the financial statement audit process of auditing firms to be closer to the risk-based audit approach.

However, whether the auditing firms determine the audit content by item or by business activity, the specific audit content also depends on the actual situation at the audited commercial bank, depending on the scale, operating characteristics, and effectiveness of the internal control activities of the commercial bank. Large-scale commercial banks often have large amounts of assets and capital, providing many services and products to customers, so when auditing the financial statements of these commercial banks, auditors often determine the audit content to include all types of transactions or items as shown in Table 1.2. For the audit of financial statements of medium and small-sized commercial banks, the main audit content that auditors are often interested in is credit and reserve transactions; deposit and payment transactions... and some key accounts, accounting for a large proportion of assets and capital. In addition, due to the differences in business characteristics of each commercial bank, the audit content determined for each type of customer also has significant differences.

3.3.3. Completing the financial statement audit process

Meaning of the solution : Applying steps in the scientific and reasonable auditing process, ensuring compliance with Auditing Standards is the basis for auditors to be able to collect sufficient and appropriate audit evidence, thereby ensuring the quality and effectiveness of the audit.

Regarding the process of auditing commercial bank financial statements, with the limitations being encountered, auditing firms need to focus on completing the following steps:

3.3.3.1. During the audit planning stage

During the audit planning phase, auditing firms need to complete some of their limited work steps, specifically as follows:

Complete customer acceptance review and contract risk assessment

For both Big Four and non-Big Four audit firms:

With the limitations analyzed in the step of considering customer acceptance and assessing contract risks, auditing firms need to complete this step to ensure that they limit the occurrence of audit contracts with too high risks or at least understand the factors leading to audit contract risks and correctly assess these risks to best control risks to ensure audit quality and protect their prestige and reputation. To complete this step, auditing firms need to complete the following tasks:

- Further raise awareness of the importance of the customer acceptance/retention review and contract risk assessment steps and take appropriate actions to ensure that this step is substantive and not just a formality as is currently being done.


- Provide specific content that the auditor needs to learn in this stage and request the level of detail of the research. Factors that the auditor needs to learn often include: Characteristics and integrity of the manager, nature of business activities, financial results in recent years, knowledge and experience of the auditor, fraud risks, etc.

- After learning about the above factors, auditors are required to analyze the impact of these factors on commercial banks and commercial banks' financial statements as well as the major risks that may occur to the audit contract.

Among the above factors, the auditing firm needs to especially study the integrity of the administrator, the factors leading to fraud risks and review the financial results of the most recent years and periods to assess the risk of the audit contract. The auditing firm can design detailed interview questionnaires to study the integrity of the administrator, the factors leading to fraud risks. The auditing firm can also design tables analyzing the financial results of the most recent years/periods of the commercial bank to review the signs that may affect the ability of the commercial bank to continue operating. These instructions and forms are part of the content of the Bank Audit Manual/Guideline. Interview questions on fraud at commercial banks can address the following issues:

- Does the Board of Directors have any knowledge of actual, suspected or alleged fraud affecting the entity?

- What is the Board of Directors' process for identifying and addressing fraud risks within the entity?

- What is the Board of Directors' process for any fraud risk when it is detected or notified of such risk?

- For account balances or disclosures that are likely to give rise to fraud risks, what is the process by which the Board of Directors detects and addresses these risks?

- How, if at all, has the Board of Directors communicated with the Management Board about the process of identifying and handling risks within the unit?

- How, if at all, has the Board communicated with employees about the Board's views on business operations and ethical behavior?

- Has the Board of Directors ever been asked, directed or pressured to perform an illegal or unethical act in their current (or previous) position in the unit? Or anything that you feel unsatisfied with?

- Has any of your employees ever said that they or anyone else was asked or pressured to do something illegal or unethical?

- Has the Board of Directors ever been asked to falsify financial statements? If so, describe the actions you were asked to take and identify who asked you to take such actions.

- Factors that put great pressure on the Board of Directors that can affect the financial statements?

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