Evidence Collection Techniques and Computer-Aided Auditing Techniques in Auditing Commercial Bank Financial Statements

This will be presented in detail by the author in section 1.2.4. Evidence collection techniques and computer-assisted auditing techniques in auditing commercial bank financial statements.

1.2.3.3. Audit completion stage

In this phase, the auditor needs to perform the following steps to review all the identification, assessment and handling of risks to give appropriate audit opinions on the financial statements of commercial banks. Basically, the steps in this phase are performed similarly to the audit of normal corporate financial statements, including the following steps:

Prepare audit report

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 Summary of audit results

 Overall analysis of financial statements

 Review the ability to ensure continuous operation of commercial banks

 Collect written explanations from the Board of Directors and the Board of Management of the commercial bank

 Review of events occurring up to the date of the audit report

In the step of preparing the audit report, the auditor needs to consider the ability to ensure the continuous operation of the commercial bank and consider the events arising up to the date of the audit report because it has a significant impact on the audit risk, because commercial banks are often units that have a profound influence on many other entities in the economy.

Audit procedures that help auditors fulfill this responsibility include: Assessing risks by considering whether there are events or conditions that may cast significant doubt on the bank's ability to continue as a going concern; Reviewing the unit's Board of Directors' assessments of the bank's ability to continue as a going concern; Interviewing the unit's Board of Directors about the Board of Directors' understanding of events or conditions that arise after the period assessed by the Board of Directors that may cast significant doubt on the bank's ability to continue as a going concern; Performing additional audit procedures when auditors become aware of events or conditions that cast significant doubt on the bank's ability to continue as a going concern; If there is a significant delay in signing and approving the financial statements related to the assessment of the commercial bank's ability to continue as a going concern, the auditor must perform additional audit procedures, as well as consider the impact on the auditor's conclusion about the existence of a material uncertainty related to the ability to continue as a going concern.

According to the regulations on banking operations, auditors are required to explain to the management agencies their intention when giving an opinion on amendments or any concerns of the auditor about the bank's ability to continue operating. Auditors also note to perform additional audit procedures to collect sufficient appropriate audit evidence to determine all events that have occurred up to the date of signing the audit report that may affect the financial statements that require the bank to adjust or explain on the financial statements. The procedures that auditors often perform are similar to those when auditing corporate financial statements.

Normally. After review, the auditor will decide to stop or apply additional measures to check details of transactions arising before and after the closing date and collect confirmation from lawyers, legal consultants... to determine the correctness and completeness of the notes in the financial statements, as a basis for appropriate comments on the financial statements of commercial banks.

Prepare and issue audit reports and management letters

This step is performed similarly to a regular corporate financial statement audit. After performing the above steps in the final audit phase and the auditor is satisfied that sufficient appropriate audit evidence has been collected, the auditor will give comments on the financial statements of the commercial bank and will prepare an audit report and a management letter. In the audit report, the auditor presents an official opinion to publicize information and has high legality. The audit report of the commercial bank must be performed in accordance with the work progress specified in the audit contract and must comply with State regulations on the time of information disclosure of the commercial bank. In addition, with the purpose of consulting and helping the commercial bank to improve its business activities in general and improve the efficiency of financial and accounting work in particular, the auditor also issues a management letter (internal between the audit firm and the commercial bank).

Before issuing the audit report to the client, the auditor needs to review and approve the report to ensure that the audit has been strictly controlled from the audit planning stage to the end of the audit, in compliance with CMKit; appropriate audit evidence has been collected sufficiently to serve the purpose of issuing the audit opinion. After issuing the audit report, some events may occur that the auditor needs to resolve. Specifically, there are 2 types of events as follows:

 Resolve events arising after the date of signing the audit report but before the date of publication of the commercial bank's financial statements;

 Handling of events occurring after the date of issuance of financial statements

The auditor's responsibilities and procedures related to these events are similar to those of a regular corporate financial statement audit.

Work performed after the audit contract

The work performed after the audit contract is performed similarly to a normal corporate financial statement audit, including the following two steps:

Complete the audit file to ensure that the file on the audit of the commercial bank's financial statements has been prepared and fully archived with records, documents, and audit evidence as a basis for giving audit opinions according to the provisions of the CMKit, laws, and related regulations.

Assessing the quality of the audit contract. After completing the audit contract, the audit team, especially senior members, will meet to summarize the quality of the audit contract and draw lessons for future audits.

1.2.4. Evidence collection techniques and computer-assisted auditing techniques in auditing commercial bank financial statements

Audit evidence collection techniques

When auditing commercial bank financial statements, auditors often use audit evidence collection techniques including: Inspection, Observation, External Confirmation, Recalculation, Re-Performance, Interview, and Analytical Procedures. Specifically, each of these evidence collection techniques will be applied by auditors in the audit of commercial bank financial statements as follows:

Testing techniques

Testing techniques in auditing commercial bank financial statements include physical testing and document testing.

 Physical inspection : Is the process of on-site inventory or participating in inventory of the assets of commercial banks. Physical inspection is often applied to physical assets, which have specific physical forms such as cash, inventory, valuable papers, fixed assets, etc. Auditors can combine physical inspection of physical assets of commercial banks with observation and inventory of these assets. In addition, auditors will also have to combine with audit evidence from other techniques to prove the ownership and value of the assets.

 Document inspection : Is the inspection of documents, accounting books or vouchers, which can be from inside or outside the unit; in paper form, electronic form, or other forms. The inspection of documents, accounting books and vouchers provides audit evidence of varying reliability, depending on the content, origin of the audit evidence and depending on the effectiveness of the controls over the process of creating documents, accounting books and vouchers within the commercial bank. In auditing commercial bank financial statements, the areas where auditors often use inspection techniques to collect evidence are securities, loan contracts, collateral, agreements and commitments to sell and repurchase assets or guarantees, etc.

Observation techniques

Observation is the monitoring of a process or procedure performed by another person. This technique is often used by auditors mainly in control surveys to evaluate the effectiveness of internal control. Auditors can observe the staff of a commercial bank performing their work to evaluate the operation of internal control for the financial statement preparation process or each important business cycle of the commercial bank to see whether the control procedures are applied in practice, whether the control procedures ensure the prevention and detection of material errors, and whether there are any shortcomings in the internal control process of the unit?...

External confirmation

External confirmation is audit evidence that the auditor collects in the form of a direct response letter from a third party (the confirming party) in the form of a paper letter, email or other form. In auditing commercial bank financial statements, auditors often use the technique of

External confirmation techniques to collect evidence on the value, maturity and terms of contracts or agreements between commercial banks and customers and partners of commercial banks or to determine the existence and completeness of assets and liabilities presented in the financial statements of commercial banks. Auditors often send confirmation letters to third parties such as Nostro and Vostro account holders; customers depositing money at commercial banks or customers borrowing money from commercial banks; customers guaranteed by commercial banks, etc.

Recalculation Technique

Recalculation is the process of checking the mathematical accuracy of the data. This technique is only concerned with the purely numerical accuracy of the data, so auditors often have to use it in combination with other techniques such as inspection, interview, analysis, etc. In auditing commercial bank financial statements, auditors often use recalculation techniques to check the consistent application of the valuation models applied by commercial banks through selecting samples to recalculate the data and then compare them with the calculated results of the commercial bank. For example, auditors can select samples to recalculate the expected interest or expected payment; recalculate fixed asset depreciation costs or prepaid expenses allocated during the period, etc.

Re-implementation technique

Re-performance is the independent implementation of procedures or controls that have been previously implemented by the entity as part of the internal control of a commercial bank. In the audit of a commercial bank's financial statements, auditors often perform this technique when performing control tests to check the effectiveness and efficiency of internal control procedures in practice. This technique is also combined by auditors with other techniques when conducting surveys on internal control such as observation, interviews and document inspection.

Interview techniques

Interviewing is the process of seeking financial and non-financial information from knowledgeable persons inside or outside the bank. Interviewing takes many forms, from formal written interviews to informal oral interviews. When conducting interview procedures, auditors must always evaluate the answers to seek conclusions and audit evidence. In auditing financial statements of commercial banks, auditors widely use interviewing techniques throughout the audit process in addition to other audit procedures to help auditors collect evidence about the operation of internal control or collect information not in the accounting books of commercial banks or provide corroborating audit evidence.

Analytical procedures

Analytical procedures include evaluations of financial information through analysis of relationships among financial and non-financial data. Analytical procedures also include examining, when necessary, identified fluctuations and relationships that are inconsistent with other relevant documents or information or that deviate from expected values by a significant amount. In

In auditing commercial bank financial statements, auditors use analytical procedures quite a lot because this procedure brings high efficiency to the audit. This has been analyzed in detail by the author in the above sections.

Computer-aided auditing techniques in auditing commercial bank financial statements

As analyzed in the above sections, commercial banks are units that apply IT extensively in all their business activities. The IT environment of commercial banks affects the risks for the internal control activities of commercial banks and therefore it affects the risk of material misstatements in the financial statements of commercial banks. Therefore, it requires auditors to have full attention to the impact of IT on the audit, both in the way it is collected, processed and reported by commercial banks on the financial statements and in the way auditors need to use IT in the process of auditing their financial statements or must consider using computer-assisted auditing techniques as a tool to improve the effectiveness and efficiency of audit procedures to process data contained in the client's information system. The extent to which computer-assisted auditing techniques are applied in each audit depends on factors such as the practicality of performing manual tests; the effectiveness of the use of computer-aided techniques; the availability of audit time; the availability of computer equipment by the audit client; the experience and skill in using computer-aided auditing techniques performed by the client's internal audit function and the extent to which the independent auditor can rely on these tasks. When performing an audit of a commercial bank's financial statements, the auditor may use the following computer-aided auditing techniques:

Auditing software

Audit software is a general term used to describe computer programs designed to perform tests of controls and/or substantive tests to interrogate a client's computer files. Using audit software, auditors can review large volumes of data. With the results produced by the audit software, auditors can then conduct further investigation to gather audit evidence. Audit software includes the logic programs necessary to perform most of the functions required by auditors such as sampling, reporting exceptional items, comparing data files, analyzing, summarizing and stratifying data, etc. Auditors need to determine what functions they want to use and select criteria. Audit software programs can be classified as:

Generalised audit software /Package programs

General audit software is pre-written programs that the auditor will specify detailed requirements for, and is applicable to many different computer systems.

different types of clients. General auditing software usually includes common tools (such as data visualization, calculation, sampling, etc.) and is integrated by many packaged program modules. Each "package" is specific to a type of enterprise. When conducting an audit, the auditor will use the corresponding "packages" depending on each type of client.

Common applications of general auditing software include verifying the accuracy of client summaries and totals; checking the completeness, consistency, and accuracy of accounting books and records by scanning all accounting books and records against certain criteria; comparing data on separate files; aggregating or re-sampling data to perform analysis; selecting audit samples; requesting paper confirmations; comparing data obtained through other audit procedures with the company's accounting books and records, etc.

Purpose written programs

These programs are often written for “client specific” purposes to perform specific functions of the auditor’s choice. When general audit software cannot be customized to the client’s system, the auditor has no choice but to develop this type of software program. They are often used to re-perform computerized control procedures (e.g., calculating interest on deposits or loans) or may perform aging analysis of client loan balances…

Enquiry programs/Utility Programs

This program is part of the client’s system, but can be adapted for audit purposes. For example, accounting software may have search tools in some modules. Auditors can use these features to serve audit purposes such as searching for all customer loans with outstanding balances at the end of the period (on the customer loan module) or all customer deposits exceeding a certain value (on the customer deposit module) …

Test data

Audit test data

Test data includes data provided by the auditor for testing on the commercial bank's computer system to evaluate the effectiveness of the client's application program controls. Therefore, the auditor will design both error-free transactions and error-containing transactions to test whether the client's application program controls detect these errors. Thus, the hypothetical transaction is processed through the client's computer system. The results of the processing are then compared with the auditor's expected results to determine whether the controls are operating effectively and the purpose is achieved.

the system's objectives are achieved. For example, errors that the auditor can introduce into hypothetical transactions such as non-existent customer account numbers; transaction value exceeding a certain limit; opening multiple CIF (Customer Information File) numbers for the same customer...

Test data can be used “live”, meaning tested directly on the customer’s normally operating system. This can lead to the risk of corrupting the customer’s data. The alternative (“dead” test data) is to execute a program that runs outside of the customer’s normal operations, using a copy of the customer’s master data. This avoids the risk of corrupting the customer’s data but provides less assurance. To avoid this, the auditor can use the built-in testing tool below.

Integrated test facilities

To overcome the limitations of the above audit test data technique, the auditor may seek the client's permission to establish an integrated test facility within the client's system. This involves establishing a hypothetical entity, such as a hypothetical customer loan account or a hypothetical customer deposit account, against which the auditor's test data are processed during the normal course of the entity's processing. They can then be ignored when the client files are printed and subsequently destroyed.

When using test data techniques, auditors should consider the following issues:

 Test data should include all relevant conditions that the auditor wants to test and the assumed transactions should be realistic.

 The applications tested by the KTV test data should be the same as the applications that customers use throughout the year, tested at any random time during the year.

 Test data must be removed from customer records upon completion of testing to prevent customer data from being compromised.

Due to the complexity of many client application software programs, when applying the test data method, the audit of commercial bank financial statements often requires the participation and support of computer audit experts.

Parallel Simulation

The auditor typically uses software controlled by the auditor to perform the same operations that the client's software is performing using the same client data files. The purpose of this approach is to determine the effectiveness of automated controls and to gather evidence about account balances. This approach is known as parallel simulation testing.

Whether performing control tests or substantive tests, the auditor must compare the output from the auditor's software with the output from the client's system to evaluate the effectiveness of the client's controls or the accuracy of the client's data. To perform parallel simulation tests, the auditor can use many types of software such as general audit software GAS or audit command language (ACL)... To perform parallel simulation tests, the auditor needs to have a copy of the client's database and master files, then use the above software to perform tests on the client's electronic files.

Embedded audit facilities/embedded audit monitor

Embedded audit tools – also known as resident audit software, require the auditor’s own program code to be embedded into the client’s application software to identify specific types of transactions. The embedded code is designed to perform the audit function and can be turned on at selected times or activated each time the application programs are used. Embedded tools can be used to:

- Collect and retain information related to transactions at the time of processing to perform subsequent audit reviews.

- Detect and record (for subsequent audit notes) any unusual items; transactions are marked with audit codes when conditions (determined by the auditor) are met. This technique is also known as tagging.

For example, the KTV can use its own program code and embed it into the client's application software to identify all foreign currency business transactions exceeding VND XXX to track and perform more detailed checks to see if these transactions have actually occurred, have been approved by an authorized person, are within the limit and are numerically correct.

Auditors may use the above computer-assisted auditing techniques separately or in combination, but they typically use the following:

• Test data to test controls and substantive tests of transactions;

• Parallel simulation applies to basic tests, such as recalculating transaction amounts; recalculating the totals of the detail ledgers of account balances.

• Embedded audit tools to identify unusual transactions for substantive testing.

1.2.5. Quality control of commercial bank financial statement audit activities

The quality of audit activities is the level of satisfaction of the subjects using audit results regarding the objectivity and reliability of audit opinions; at the same time, satisfying

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