subjected to time constraint when conducting auditing listed enterprises. This
requires auditor to be capable of judging with great specialist knowledge
throughout the audit process to properly assess risks of material misstatement
in audited financial statements.
CHAPTER 1. INTRODUCTION
1.1. The importance of research topic
In today's market economy, auditing have gained considerable public
interest and trust , thereore the demands for auditing are increasingly high,
which require auditors and auditing companies to improve both their
professional capabilities and audit services. The audit report is the foundation
for the third party to seek information and make investment decision. In the
current market economy, securities is a relatively new investment form in
Vietnam, laws and policies on securities are still limited thus, the audit report
of listed enterprises is a matter of great concern to the public when they intend
to invest in stocks on the stock market.
Globally, the collapse of Enron Energy (2001), Worldcom (2002), Tyco
International (2004), Peregrine Systems, Olympus (2012) , US Health South
(2003)... were caused by fraudulent financial statements, however the auditor did
not detect material misstatement due to fraud. Audit firm Arthur Anderson, who
conducted the audit of Enron Energy Group, did not properly evaluate a $ 51
million deviation (of $ 105 million in total profits), which was considered nonmaterial, therefore the bankruptcy of Enron also led to the bankruptcy of Arthur
Anderson. In Vietnam, listed companies who defrauded their financial statements
such as Eastern Pharmaceutical Company or SME Securities Company, Bach
Tuyet Cotton Company ... However, when auditing, auditor and auditing company
did not detect material misstatement in the financial statements of these
companies.
In addition, during the auditing process, auditor often encounters difficulties
in applying procedures to detect material misstatements in financial statements
(Dikmen, 2010; Porter & Cameron, 1987; Coderre, 1999). As a consequence,
when conducting the audit of financial statements, material misstatement risk
assessment
of
auditors
still
have
certain
limitations.
listed enterprises manager must make sure that the financial statements are
truthful and fair without material misstatement (APB; FASB). Nonetheless,
mistakes are often hidden by the manager or the information released to the
shareholders and investors is incomplete in order to maintain the stock price, the
reputation of the business (Jensen & Meckly, 1976).
According to the VSA 200, the purpose of financial statement auditing is
to increase the credibility of the financial statement, based on the auditor’s
opinion as to whether the financial statements are written with a material
respect in accordance with the framework of writing and presenting a financial
statement. [VSA 200]
With the responsibility to do so, auditor and auditing firm are also
In addition, the competition between auditing firms to maintain and increase
the number of customers leads to these firms have to reduce their price. Audit
approach based on material misstatement risk assessment is the key to help
auditor to ensure the effectiveness and efficiency of the audit.
For these reasons, the author has boldly selected the PhD thesis " Assessing the
risk of material misstatement in financial statement auditing of enterprises
listed on Vietnam securities market "
1.2. Overview of Related Researchs
Globally:
Study of Norman & Associates shows the effect of internal control on
the reliability of financial statements, errors in financial reporting (Norman et
al., 2011). The potential for material misstatement might be caused by control
risk and audit risk. Technically, material misstatement may be due to errors or
fraud. Early study of frauds in financial report includes the work of Rommey &
Associates (1980), which issued 87 Red Flags for predicting fraud. Then,
Albrecht & Rommey used the predictive signs to study study about fraud.
Studies have concluded that these signs are significant in predicting fraud and
integrity of the Board of Manangement. A study by Loebbecke et al. (1989)
provides a predictive model for the risk of errors due to fraud. A study by Bell
& Carcello (2000), Nieschwitz et al. (2000), Wilks & Zimbleman (2004) shows
that the Loebbecke & Associates model is quite effective in detecting fraud in
fianancial statement.
The study of material misstatements in fianancial statement is common
to the indicators in balance sheet. Outstanding representatives of this field are
Mock and Wright, 1993; Kreutzfeldt and Wallace, 1986; Wright and Ashton,
1989; Albrecht & Zimbleman, 2009; Beclard, 1989; waller, 1993; Schultz,
Bierstaker & O'Donnell, 2010; Brazel et al., 2009. These studies have showed
that the frequency of material misstatement in revenue target, receivables from
customers and inventories and commodities is higher than other indicator on
the balance sheet.
One of the causes of risk in material misstatement is the management of
the company. Intentionally concealed to make it difficult to detect material
misstatement (Jensen & Meckling, 1976) since managers consistently seek
measures to avoid damage to personal property and reputation of the manager
1
2
(Kothari Shu & Wysucki, 2009) or material misstatement were discovered
when firms went bankrupt (Ettridge et al., 2010; Palmrose, Richardson, Scholz,
2004; Anderson & Yohn, 2002; Kinney & McDaniel, 1989; Srinivasan, 2005).
Management model is also one of the causes of MATERIAL
MISSTATEMENT (Behn and Riley, 1999; Lundholm & McVay, 2008; Riley,
Preason & Trompeter, 2003).
Study of Marsha Kay Bradford Keune,2010 assessed the risk of material
misstatement due to fraud and focused on signs of fraud in revenue accounts ,
receivable accounts and inventory accounts. Compared with previous studies
which only investigate one account which is prone to material misstatement
resulting from fraud, this study expanded to a range of possible frauds.
Research on financial fraud forecasting are case studies using accrual model as
studied by DeAngelo (1986), followed by Friedlan (1994), Healy (1985), Jones
(1991). Studies using adjusted models based on accrual standards and
regulations, adjusted accrual models are instrumental in detecting potential
fraud in financial statements if there is any unusal deviation between reported
and projected numbers. The research by DeAngelo (1986), Friedlan (1994) and
Jones (1991) focuses on how managers adjust revenue by adjusting accrued
accounting variables.
Beneish's (1999) study is the first study about building a model
predicting possibility of finanacial statement fraud (named M-Score rate),
which aims to help auditor, investors assess the possibility of fraudulent
financial statements of enterprises. The Beneish model of detecting companies
capable of fraudulent financial reporting has a precise probability of up to 76%.
The Beneish model has helped Cornell students detect Enron fraud a year
before the company went bankrupt when even the auditor did not detect any
errors.
F-sore study model of Dechow and associates (2011) studied 2190 listed
companies in the 1982-2005 period. The F-score model consists of 3 models.
After systemizing studies of material misstatement risk in the financial
statement audit, the author has concluded as follows:
The material misstatement on the balance sheet when auditing often
focus on indicators such as : revenue, inventory, receivables ..., which is caused
by the characteristics of industries and business sectors of enterprises affecting
these indicators more compared with other indicators on the balance sheet.
When auditing and collecting auditing evidence to assess the risk of
material misstatement, the auditor has difficulty in carrying out auditing
procedures, difficulties in assessing whether errors are material misstatement or
not (W.Robert Knechel (2006), or the inflexible application of audit techniques
of auditor also influence the material misstatement risk assessment results
(Oentland, 1993).
Furthermore, auditor violates the principle of independence in the
process of audit when auditor conducts material misstatement risk assessment
through business risk assessment, on the other hand, auditor becomes
consultant of the customer(Zeff,2003). This is a problem for auditor when the
customer thinks that auditor is increasing the profitability of the unit and
interfere when auditor formulates opinion on audited financial statements.
In Vietnam
Material misstatement is discussed but mainly in the audit planning stage.
Doan Thanh Nga(2011), Nguyen Thi My (2012), Bui Thi Thuy (2012) studied
the factors that influence the quality of audit through financial statement
auditing, according to survey in reality, auditors have not paid due attention to
material misstatement risk assessment, hence, there are stll many errors in the
audiors’ audit opinion.
Phan Thanh Hai (2013) examines the quality of auditing from a new
perspective on the organizational model of independent auditing, including two
elements: structure and operating mechanism on the micro and macro level
affecting the quality and effectiveness of the audit. In structure aspect: the level
of influence of each factor varies. The most influential is the size of the
auditing firm, the internal administration of the auditing firm, the quality of the
manager staff and the auditor. On operational mechanism aspect: the basis of
the customer, the auditor, the third party using the results of the audit. Research
solution for assessing the quality of audit based on the point of view of
detecting and reporting material misstatement in the financial report. Research
on the risk of material misstatement by Man Dinh (2010) proposed solutions to
improve the quality of auditing for listed enterprises is internal control and
external control, besides control by the audit firm itself there should be control
of the state management agency. Tran Thi Giang Tan et al. (2014) assessed the
material misstatement in accordance with VSA 240 and applied triangular fraud
in the detection and forecasting of material misstatement from fraud in
companies in Vietnam.
Ngo Thi Thu Ha (2007), Ly Tran Kim Ngan (2011), Nguyen Thi Huong
Giang (2013), Le Nguyen The Cuong (2013) studied fraudulent risk assessment
and design of financial reporting procedures , have outlined some of the basic
steps of auditor's fraudulent and auditor’s response to fraud risk, and evaluates
the sample audit program for detecting fraud. However, these studies have not
conducted systematic and comprehensive studies on fraudulent risk assessment
3
4
as well as how auditor changed the audit program.
The Beneish model applied in Vietnam was conducted by Nguyen Cong
Phuong and Nguyen Tran Nguyen Tran (2004) with 30 companies with
material misstatement in 2012 financial statements detected and released by
auditors. The results indicate a precise predictive probability of 53.33% in
detecting material misstatements in the company's financial statements. Thus,
the Beneish model can be used as a tool to assist auditors to assess the risk of
material misstatement in the financial statements
In summary, the researchs on the risk of material misstatement are
presented in the following aspects:
The study provides a solution to limit material misstatement affecting
financial statement audits by applying material misstatement evaluation
models.
Material misstatement were assessed by the authors through the
application of the VSA 240 audit standard and triangular fraud, or risk
assessment in the internal control system.
The fact that independent auditing firms has not paid due attention to the
assessment of material misstatement affects the quality of auditing, but the
studies have not presented any identification that may affect the material
statement risk assessment in financial statement audit. On the other hand, major
studies assess material misstatement primarily in the planning stage without
paying much attention to material misstatement throughout the entire audit
process.
1.3. Research Objectives
The main objective of the study is to examine the relationships among
factors affecting the results of material misstatement risk assessment in
financial statement of listed enterprises on the stock market of Vietnam in all
three stages: planning, performing and reporting audit.
1.4. Research Question:
In order to achieve the objectives mentioned above, this research
focused on the following questions:
Question 1: The theoretical basis for material misstatement risk
assessment in financial statements audit of listed enterprises in 3 stages: how
to plan, perform and report an audit?
Question 2: What factors influence the results of risk assessment in financial
statements audit of listed enterprises in 3 audit stages?
Question 3: What is the direction of impact factors affecting the results of risk
assessment in financial statement audit of listed enterprises in 3 stages:
planning, performing and reporting an audit?
Question 4: The level of influence of the factors on the results of the results of
risk assessment in financial statement audit of listed enterprises in 3 stages:
planning, performing and reporting an audit?
Question 5: Which solution would help auditing company to control the factors
affecting the results of risk assessment in financial statement audit of
enterprises listed on Vietnam stock market?
1.5. Objective and scope of the research
Objective: To assess the risk of material misstatement in the financial
statement audit of enterprises listed on Vietnam stock market in three stages:
planning audit, performing audit and reporting audit of auditors.
Research scope: To achieve the research objectives, the thesis focuses on
independent auditing companies which are certifiated by the State Securities
Commission to performing audit for listed companies such as: Deloitte
Vietnam Limited, Nhan Viet Auditing Company Limited, VaCo Auditing
Company, Sao Viet Auditing Company Limited.
1.6. New contributions of the thesis
(1) Determining the influence of factors on the results of material
misstatement risk assessment in audit planning stage including the control
environment of the enterprise, information system, industry characteristics,
economic environment, third-party pressure, in the performing stage,
influencing factors: auditor's pressure, accounting capacity, objective factors,
in the ending stage, influencing factors: sum up the auditing results and assess
the effect of errors detected in the ending stage.
(2) The thesis finds that independent auditor firms perform risk
assessment of material misstatement in the audit planning stage, but has not
paid due attention to the performing and reporting stages.
1.7. Structure of the thesis
This thesis is structured into 5 chapters:
Chapter 1: Introduction
Chapter 2: The theoretical basis for material misstatement risk
assessment in the audit of financial statements of listed companies.
Chapter 3: Methods of studying the factors influencing the results of risk
assessment with material misstatement in financial statement audit of
enterprises listed on Vietnam stock market.
Chapter 4: Results of study on the impact of factors on risk assessment
results in financial statement audit of enterprises listed on the stock market in
Vietnam.
Chapter 5: Solutions to complete the material misstatement risk
assessment in financial audit of enterprises listed on Vietnam stock market.
5
6
CHƯƠNG 2
THEORETICAL BASIS OF MATERIAL MISSTATEMNENT RISK
ASSESSMENT IN FINANCIAL STATEMENT AUDIT OF LISTED
COMPANIES
2.1 Characteristics of financial statement of listed companies and
requirements on reliability of information
2.1.1 Characteristics of financial statements of listed enterprises
First, the financial statements of listed enterprises need to ensure high
reliability and financial statements of listed enterprises are counted.
Secondly, the financial statements provide the indicators of profitability.
Thirdly, the financial statement summarize a number of arising operations.
Fourth, the financial statements of listed enterprises must comply with the strict
regulations of the stock market, which require mandatory auditing.
2.1.2 Requirements on the reliability of information
2.2 Sai sót và sai sót trọng yếu trong báo cáo tài chính Errors and material
misstatement in the financial statements
2.2.1 Missatement in financial statements
2.2.1.1 Definition of error
2.1.1.2 Factors cause the error to arise and develop
2.2.1.3 The errors in financial statement of enterprises
Firstly, false evenue recognition (state higher revenue)
Secondly, false accounting year recognition
Thirdly, concealed liabilities and costs
Fourthly, mispriced assets
Fifthly, incomplete information disclosure
2.2.1.4. Features of the errors in accounting
2.2.2. Material misstatements in financial statements
The material misstatements in financial statements may be caused by
error or fraud, or may be the result of: (a) inaccuracy in the collection or
processing of the data relevant to the financial statements due to the lack of
discretion in documents collecting, data entry leads to inaccurate data affecting
the financial statements of enterprises; The pressure of management or
accountants in deficit leads to pressure leading to material misstatement in the
financial statements; Misuse of the accounting system due to limitations in
accounting qualifications or new professional operations.
2.3 Risk of Material Misstatement in Financial Statements
When referring to risk from a simple point of view, risk is an indication
of an event that is unintended and when it occur it would lead to a
disadvantageous result.
Definition of material misstatement risk in financial statements are risks
that have a spillover effect on many items on the financial statements and
potentially affect to multiple data bases. These risks represent situations that
may increase the risk of material misstatement at the primary data level.
Evaluating the risk of material misstatement is a very important matter
affecting the design of technical method, timing, staffing and content of
financial report when make auditing plan.
2.4 Material misstatement risk assessment in financial statement audit of
listed enterprises
2.4.1. Relationship of Auditing risks
2.4.2 Significant material misstatement in audit planningstage
As defined in IAG 25, Materiality and Risk of Auditing, "Auditing Risks
are risks that auditor may encounter when making inaccurate remarks
concerning financial information which are serious errors. "
Auditing risk on account level is represented by the model:
AR ≡ f (IR, CR, DR) (1)
Where:
AR: auditing risk
IR potential risk
CR: control risk
DR: detection risk
In this stage, the auditors assess the possibility of material misstatements, make
initial assessment of the materiality and conduct analytical procedures to
determine the time required to perform the audit and other audit procedures.
2.4.3 Material misstatement risk assessment in performing stage
According to Nguyen Quang Quynh & Ngo Tri Tue (2006), the
performing phase of audit plan to collect evidence to ensure the credibility of
the internal control system. Therefore, the satisfactory test is called a control
test or a control quiz. Performing audits depends on the reliability of the
internal control system at various levels.
2.4.4. Material misstatement risk assessment in the ending stage of audit
According to Nguyen Quang Quynh and Ngo Tri Tue (2014), in the
ending stage, auditor should assess the materiality and risks for the last time.
First, auditor should first gather all evidence collected during the audit to carry
out a final assessment of materiality and risk for the entire audit. The auditor
also needs to determine the cumulative number of all errors that have not been
adjusted to their material value. If the cumulative number of all unadjusted
errors is material, auditor should consider decreasing the audit risk by
7
8
extending the scope of its audit or by requiring manager to adjust the financial
statement.
Regarding the risk of undetected material misstatement, auditor
considers implementing necessary audit procedures to obtain the final audit
evidence, eg, the guarantee by the board of management regarding questionable
matter.
3.2 Data sources
The thesis uses two sources of data in the research process: secondary
data and primary data.
Secondary data:
The thesis collects secondary data from the following sources:
(1) Based on the current status of financial statements of companies
listed on the stock market of Hanoi Stock Exchange and Ho Chi Minh City
Stock Exchange, SSC , information on securities websites .....
(2) Summary of research results of previous studies.
(3) Gathering actual evidence and performed audit procedures; collecting
materials related to auditor activities .....
Primary data:
The author sent survey questionnaires to eligible auditor of listed enterprisess
on Vietnam stock market. The author base on the the list of auditors eligible for
auditing listed enterprisess on the website of Vietnam Association of Certified
Public Accountants (VCAs) over the years to send questionnaires.
3.3 Qualitative research
3.3.1 Research model introduction
Establish research model, the author has studied document, current situation,
implemented the method of expert interview, synthesis and analysis.
3.3.1.1 Document review
The author has made a generalized system of theoretical backgrounds of
previously
studied
documents
on:
(1) Characteristics of financial statement of listed enterprises and
information reliability requirements;
(2) Errors and material misstatement in the financial statements;
(3) Risk of material misstatement in financial statements;
(4) Assess the risk of material misstatement in the financial statement
audits through 3 stages of planning, performing and conclusion of audit.
(5)
Conditions
for
listing
on
Vietnam stock
market;
(6) Characteristics of an independent auditing firm eligible to perform
auditing for listed enterprises;
(7) The current status of the risk of material misstatement in financial
statements of listed enterprises.
Documentation methods help the author identify: variables in the
research model and representative scales, research hypotheses
3.3.1.2 Practical research
The author conducted a material misstatement risk assessment in
financial statement of enterprises listed in Vietnam and in the world, the
method of risk assessment in: planning, performing and ending audit, websites
of auditing management organizations, websites on current situation of
securities market.
9
10
CHAPTER 3
METHODOLOGY OF MATERIAL MISSTATEMENT RISK
ASSESSMENT IN FINANCIAL STATEMENT AUDIT OF
ENTERPRISES LISTED ON
VIETNAM SECURITIES MARKET
3.1. Overview of research process
Researh
qualitatively
Review previous
researchs
Identify research
purpose
Review
quantitative model
Discuss, analyse
research subject
Analyse data
Model and
hypotheses
Design
questionnaire
and sample
Collect data
Hình 3.1. Research process
Source: Author Collected
3.3.1.3 Methods of expert interviews
Prior to identifying the research model, variables in the research model,
questionnaire, the author interviewed experts who had many years of
experience in the field of accounting, auditing, finance, stock market. Thereby,
information is collected about:
(1) the difference between material misstatement due to errors and due to
fraud, indicators to distinguish;
(2) Factors affecting the results of risk assessment with material
misstatement;
(3) The method of material misstatement risk assessment in audit of
financial statements through stages of audit.
3.3.1.4 Synthesis, analysis
Through documentary research methods, practical research, expert
interviews. The author conducted an analysis of the overall assessment of
material misstatement risk in financial statements of companies listed on
Vietnam stock market. Accordingly, the author has defined the content the
thesis:
First, the reasoning system of material misstatement in financial report
auditing;
Second, the potential risk and control risk to assess the risk of material
misstatement in financial statement audit;
Third, material misstatements risk should be assessed through all three
phases of the audit and assessment method.
3.4 Quantitative research
3.4.1 Research model and hypothesis
] The author based on VSA 315 to conduct quantiative survey and build
research model with the following factors:
Control enviroment
Risk assessment process of
enterprises
Control activities
Information system
H1H2H3H4-
Control supervisor
H5-
Material misstatements
risk assessment
-
Brand
H6
H7H8-
Sector characteristic
H9Economic enviroment
Third party pressure
Figure 3.3. Study model of audit planning process
From the model, the athor put forward the following hypotheses:
H1: Control environment has the direct impact on the results of the assessment
of material misstatement in the audit of financial statements.
H2: process of enterprises has the direct impact on the results of material
misstatement in the audit of financial statements.
H3: Control activities have the direct impact on the result of material
misstatement in the audit of financial statements.
11
12
H4: Supervision of controls has the direct impact on the result of material
misstatement risk assessment in the audit of financial statements.
H5: Information system has the direct impact on the result with serious
misstatement in the audit of enterprise financial statements.
H6: Brand name of the audited company has the inverse impact on the result of
material misstatement risk assessment in auditing the enterprise financial
statement.
H7: Sectoral characteristics have the direct impact on the result of material
misstatement risk assessment in the audit of financial statements.
H8: Economic environment influences the results of material misstatement risk
assessment in the audit of financial statements.
H9: Third party pressure on auditors affects the results of material
misstatement risk assessment in the audit of financial statements.
Study model of audit’s performing and reporting stage
Assessment model of material misstatement risk at the end of the audit period
as following:
Figure 3.5. Study model of reporting stage of audit
H14: Consolidating audit results has an impact on the results of material
misstatement risk assessment in the audit of financial statements.
H15: Evaluating the impact of misstatement detected at reporting period of
auditing has an impact on the material misstatement of the financial
statements.
From the model and hypotheses given, the author estimated the regression
equations as follows:
Results of material misstatement risk assessment(R) = β0 + β1*CE +
β2*RA + β3*AC + β4*MO + β5*IS + β6*TR + β7*DD + β8*MTKT +
β9*AL+ β10*HD+ β11*NL+ β12*KQ +β13*PR+ β14*TH + β15*RSTT.
Figure 3.4. Study model of performing stage
From the model above, the author came up with the following assumptions:
H10: The intervention of board of directors in accounting activities affects the
results of material misstatement in the audit of financial statements.
H11: The capability of accountants affects the results of material misstatement
assessment in the audit of financial statements.
H12: The objective factor affects the results of the of material error in the audit
of financial statements.
H13: The pressure factor of the auditor affects the result of material
misstatement assessment in the audit of financial statements.
3.5 Survey methodology
3.5.1 Survey forms and scales development
3.5.1.1. Design scales
3.5.1.2. Design questionnaire and methods of collecting questionnaires
3.5.2 Research sample and procedure
3.6 Data Analysis Methods
3.6.1. Collect data from survey questionnaire
3.6.2 Descriptive statistics analysis
3.6.3 Reliability of scale analysis
3.6.4 Explorations of factor analysis
3.6.5 Correlational regression method analysis
3.6.6 Analyze differences among groups of auditors
13
14
CHAPTER 4
STUDY RESULTS OF IMPACTS OF FACTORS ON THE RESULTS OF
MATERIAL MISSTATEMENT RISK ASSESSMENT IN THE AUDIT
OF FINANCIAL STATEMENTS OF ENTERPRISES LISTED ON
VIETNAM SECURITIES MARKET.
4.1 Auditing financial statements of enterprises listed on the Vietnam
securities market.
4.1.1 Conditions of listing enterprises on Vietnam securities market.
4.1.2. Characteristics of the independent auditing firms approved to audit
financial statements of listed enterprises.
4.1.2.1 Formation and development of independent audit in Vietnam
4.1.2.2 Legal basis of independent audit activities on financial statements of
listed enterprises.
4.1.3 Vietnamese Auditing Standards on material misstatement risk assessment
in auditing financial statements of listed companies.
4.2 Results of material misstatement risk assessment in auditing financial
statement of listed on the Vietnam securities market.
4.2.1 Describe the subject of the survey
4.2.2 Verify scale reliability
4.2.2.1 Test groups of factors at the audit planning stage
4.2.3 Test groups of factors at the audit performing stage
4.2.4 Test groups of factors at the audit reporting stage
4.2.5 Test dependent variable R factors.
4.3 Analyze the discovery of EFA factor
4.3.1 Analyze groups of factors at the audit planning stage
Table 4.22 Analysis of factors for independent variables
MAIN COMPONENTS
1
2
3 4 5 6 7 8
MO3
.794
AC3
.785
AC4
.781
MO4
.748
MO1
.743
AC1
.733
AC2
.731
MO2
.679
RA3
.880
RA4
.844
15
RA2
RA1
AL1
AL3
AL2
MTKT3
MTKT2
MTKT1
TR4
TR1
TR3
TR2
CE3
CE1
CE2
DD1
DD2
DD3
IS1
IS2
IS3
.821
.785
.922
.861
.839
.823
.804
.795
.790
.742
.731
.675
.868
.813
.726
.881
.873
.723
.830
.800
.671
KMO
p-value of Bartlett
Average Variance Extracted
0.744
0.000
70.23%
Source: Author collected
4.3.2 Analysis of factors at the performing stage
Table 4.23 Analysis of factors for independent variables at the
performing stage
MAIN COMPONENTS
1
2
3
4
PR2
.889
PR1
.878
PR4
.808
PR3
.795
KQ1
.874
KQ2
.866
KQ3
.754
HD1
.855
16
MAIN COMPONENTS
1
2
3
4
HD2
.796
HD4
.788
HD3
.729
NL1
.920
NL2
.744
NL3
.669
KMO
0.704
p-value of Bartlett
0.000
Average Variance Extracted
73.91%
Source: Author collected
4.3.3 Analysis of factors at the reporting stage
Table 4.24 Analysis of factors for independent variables at the reporting
stage
Main components
1
2
TH2
.923
TH1
.914
TH3
.881
RSTT3
.877
RSTT2
.873
RSTT1
.850
KMO
0.670
p-value of Bartlett
0.000
Average Variance Extracted
79.49%
Source: Author collected
4.3.4 Analysis of dependent variables
Table 4.25 Analysis of factors for dependent variables
Main components
1
R3
.924
R2
.881
R1
.840
R4
.698
KMO
0.782
p-value of Bartlett
0.000
Average Variance Extracted
70.51%
Source: Author collected
17
4.4 Correlation Analysis
4.5 Regression analysis
Coefficients
Standardized
Coefficients
Beta
a
Unstandardized
Coefficients
Model
B
Std. Error
(Constant) 2.855
.416
ACMO
-.094
CE
-.101
RA
DD
AL
.001
.149
.125
IS
-.350
TR
MTKT
-.025
.095
NL
-.102
KQ
HD
PR
TH
.139
.092
.178
.145
RSTT
-.155
1
T
Sig.
6.863 .000
.038
-.094
2.49 .013
4
.030
-.129
3.32 .001
4
.035
.002
.042 .966
.032
.166
4.625 .000
.037
.142
3.340 .001
.040
-.362
8.72 .000
6
.043
-.020
-.579 .563
.031
.128
3.056 .002
.034
-.129
3.04 .003
6
.041
.143
3.342 .001
.031
.117
2.956 .003
.033
.206
5.441 .000
.032
.211
4.475 .000
.033
-.175
4.73 .000
8
a. Dependent Variable: R
Collinearity
Statistics
Tolerance VIF
.789
1.268
.744
1.343
.785
.868
.613
1.275
1.152
1.631
.647
1.546
.932
.630
1.073
1.586
.616
1.622
.605
.711
.774
.501
1.654
1.407
1.291
1.996
.815
1.226
Source: SPSS Test
After hypothesis testing, the regression equations are:
Results of material misstatement risk assessment(R) = 2.855 0.094ACMO - 0.101CE +0.149DD +0.125AL - 0.350IS +0.095MTKT 0.102NL + 0.139KQ + 0.092HD+ 0.178PR + 0.145TH - 0.155RSTT
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Through the standardized beta factor, it is possible to see the level of
impact of factors on the material misstatement risk assessment . Based on the
standardized beta of the factors used to assess the impact of factors on the
material misstatement risk assessment , it can be ordered as follows:
Having the strongest effect on the R-rating is the IS Information System
factor (standardized beta coefficient--0.35); having the second strongest
influence on R is the auditor's pressure factor (standardized beta coefficient is
0.178); The third strong influence on the assessment of misstatement detected
at the audit reporting stage RSTT (standardized beta coefficient (-55); the
fourth strongest influencer on R is the characteristic of the sector DD
(standardized beta coefficient -0.149); the fifth strongest influence on R is the
aggregation of audit results TH (standardized beta coefficient is 0.145), the
sixth strong influence on the result is third party pressure factor (standardized
beta coefficient 0.125), the seventh strong influence on R is objective factor
KQ (standardized beta coefficient 0.139); The 8th influence on R is the
capacity of accountants NL (standardized beta coefficient -0.102): the ninth one
is the control environment CE (-101): the 10th strongest influence on R is
economics environment MTKT which has a standardized beta coefficient of
0.095. The 11th most powerful influence on R is the ACMO factor
(standardized beta coefficient 0.094). The weakest influence on R is the
management operation (unstandardized beta coefficient beta factor 0.092).
4.6 Evaluating differences between characteristics of the survey subject
and material misstatement risk assessment
Table 4.29 Analysis of auditors' gender differences
Levene’s test for equal variancet test for equal mean
R
Equal variance
F
p-value
.239
.625
Unequal variance
19
t
p-value
.315
.375
.313
.374
Table 4.30 Analysis of different sizes of audited enterprises
Levene’s test for equal
F test for equal
Mean
variance
mean
value
F
p-value
T
p-value
Equal variance
.807
.481
-.426
.765
R
Unequal
variance
Source: SPSS statistics
Table 4.31 Analysis of differences in sectors of audited enterprises
Levene’s test
Levene stat p-value
Sector of operation - Risk
.983
.403
Equal mean test
t
p-value
1.070 .365
Source: SPSS statistics
CHAPTER 5
SOLUTIONS TO COMPLETE THE MATERIAL MISSTATEMENT
RISK ASSESSMENT IN AUDITING FINANCIAL STATEMENTS
OF LISTED ENTERPRISES IN VIETNAM SECURITIES MARKET
5.1. The necessity and requirement to complete the material
misstatement risk assessment of listed enterprises on the Vietnam
securities market
5.2. Complete solution to assess the material misstatement risk in auditing
financial statements of listed enterprises on the Vietnam securities market
As material misstatement risk assessment in the financial statement
auditing process is carried out according to the audit process, the author
presents the groups of solution as following process:
5.2.1. Solutions in the audit planning phase
5.2.2. Complete solution for assessing the Internal Security Policy of listed
enterprises
Auditors can use business risk as a base to assess the material misstatement
risk as follows:
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Orient audit
procedure to support
areas with high risk
Examine the effect of
business risk on audit
risk
Study business
strategy of the
customers
Study response and
control plan in
business
environment of the
customers
Consider the
possibility of error
due to business
Assess business risk
the of the customer
Figure 5.1. Material misstatement risk assessment process
To assess the material misstatement risk by using the business risk the
auditors can follow the procedure:
5.2.2. Complete solution for assessing the internal control system of listed
enterprises
5.2.3. Completing the evaluation of material misstatement risk assessment in
the audit performing period
Enhance the capacity of auditors
On the side of the auditors: Actively approach and learn about the
realities of different business areas of enterprises to gain knowledge for the
audits. Improve qualifications by participating in short-term courses,
workshops on auditing, accounting, tax ..... of audit associations, reputable
auditing
organizations.
On the side of the auditing company: Create conditions for the auditors to
study in order to develop their qualifications. Have a finite supportive,
rewarding and sanctioning regime. Have contact with the professional
association of auditors to update information on changes in accounting and
auditing standards.
Improve objectivity of auditors:
In order to improve the objectivity of auditors, auditors need to
understand the ethical standards of audit profession. Understand the
responsibility of the auditors with society and users of financial statements.
Auditing companies should have clear and strict regulations on violations of
ethical standards of auditors and auditors, if having serious violation of
objectivity, must be fined and may not continue working, which depends on the
level of the incident. Professional associations need to hold advanced seminars
on the responsibilities and duties of the auditors as well as the regulations for
auditors; if not complying, auditors will be removed from the association and
the auditors' licenses will be revoked.
Pressure on auditors Consolidate audit results:
During the audit phase, the auditors shall consolidate audit results
collected during the course of audit, which is truthful and follows prescribed
forms set by the auditing company. Consolidators of auditing results are highly
qualified auditors who have experience in auditing the business field of
customers. Auditing company should have a manual on the process of
consolidating audit results for each stage and add notes on the material
misstatement as a basis for auditors' opinion formation, and it will be eassier
for the auditors to recheck.
Figure 5.2. Material misstatement risk assessment process
Evaluate the impact of misstatement detected at the audit reporting phase:
During the audit reporting phase, auditing companies should request the
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supervisor to check whether the errors in this ending period is a material
misstatement or not.
5.3. Some recommendations to strengthen the solution
5.3.1. For the authorities
To enhance the feasibility of these solutions, the author presents some
recommendations for the relevant authorities as follows:
For SSC (State Securities Commission)
The SSC should have auditing requirements for subsidiaries, joint
ventures, joint ventures of listed enterprises, public companies, companies
having large transactions with listed enterprises. Because, according to surveys,
characteristics of sectors have a great impact on the assessment of the material
misstatement risk in auditing financial statements. This provision will facilitate
the audit of financial statements of listed enterprises as well as precisely assess
the material misstatement in auditors' report on the financial statements.
For the Ministry of Finance
The Ministry of Finance is the authority to issue auditing standards, which
directly affects the auditing process and greatly affects the auditor. The market
economy is developing and there are much more complex qualifications, so the
Ministry of Finance should have specific regulations and instructions
associating with changes to help the auditors conduct the audits.
For VACPA (Vietnam Association of certified public accountants)
VCPA, a professional reunion which supports auditors plays an important
role However, to enhance their role, VACPA should focus on improving the
quality of auditors by solutions such as: holding seminars between the
association and the auditor periodically, quarterly. .... on issues such as material
misstatement that auditors often ignore and how to handle it. VACPA should
organize more training courses on sample audit programs for all auditors.
Assessing the material misstatement risk in auditing financial statements has an
important role, affecting the audit opinions of auditors, audited companies and
the users of financial statements.
About reasoning
The thesis has systematized theories of errors and material misstatements
in financial statements, errors and material misstatements in the audit of
financial statements, material misstatement risk assessment at the period
planning,
performing
and
reporting
stage
of
an
audit.
The thesis has provided an overview of the material misstatement in the audit
of financial statements through research works.
About research method
The author has collected data from two sources, secondary and primary
sources. Secondary data sources are based on the current status of financial
statements of listed enterprises in the Vietnam securities market from Hanoi
Stock Exchange and Ho Chi Minh City Stock Exchange, SSC, information on
websites of securities, study results aggregated from previous studies, the
collection of actual evidence and performed procedures of the audit; documents
related to the auditor's activities. Secondary data sources through expert
interviews help to develop an audit model and make recommendations on
completing of material misstatements in the audit of financial statements.
The author has identified the factors that influence material misstatement
risk assessment by using statistical methods and correlated regression analysis
(through SPSS software).
About survey results, analysis
The author has sent survey to 390 auditors on the list of auditors who are
approved to audit financial statements for businesses having public interest in
2015. 169 results are obtained. The author used these results to run the software
SPSS and obtained results on the factors affecting the of material misstatement:
information systems, pressure factors, consolidation of audit results ,
assessment of the impact of errors detected at the end of audit, third party
pressure, industry characteristics, objective factors, control environment,
economic environment, operations of board of directors.
Recommendations
Based on the analysis of the current status, results, test, the authors
presented the recommendations on three stages of the audit process and make
recommendations to the SSC, the Ministry of Finance, VACPA.
Research Limit
During research, the thesis just mainly obtained questionnaires results from
auditors operating in Hanoi but not many results from auditors operating in Ho
Chi Minh City.
The scope of the study only covers the assessment of the auditor's results
but not the process of conducting a material misstatement risk assessment in the
audit of the financial statements.
Although in the process of researching, the author has taken much effort,
actively applied research methods, the thesis can not avoid some shortcomings.
The author is looking forward for the contribution of other scientists so that the
thesis would be more complete.
Sincerely!
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