Method audit of financial statements It serves as a core foundation in verifying the accuracy and reasonableness of economic information presented in a company's reporting system. Law on Independent Auditing No. 67/2011/QH12Auditing is not simply about reviewing data, but also a process of gathering objective evidence to provide a professional opinion on the financial situation, business results, and cash flows of the audited entity.
In the context of a rapidly developing digital economy, the application of modern financial statement auditing methods combined with information technology has become an urgent requirement. According to statistics from the State Securities Commission, thousands of listed financial statements annually require the intervention of auditors to minimize the risk of fraud and material errors, helping to protect the legitimate rights of investors and stakeholders.
The legal basis and role of financial statement auditing methods.
Vietnamese Auditing Standards System (VSA)
All financial statement audits conducted in Vietnam must strictly adhere to the system of 47 auditing standards (VSA) issued by the Ministry of Finance. This includes, in particular, VSA 500 on audit evidence and VSA 315 on identifying and assessing the risk of material misstatement through understanding the entity and its environment.
Key governing legal documents include:
- Law on Independent Auditing No. 67/2011/QH12.
- Circular 214/2012/TT-BTC promulgates the Vietnamese Auditing Standards system.
- Decree 17/2012/ND-CP provides detailed regulations for the implementation of the Law on Independent Auditing.
Why do businesses need to focus on the methodology for auditing financial statements?
Choosing the right financial statement audit methodology helps auditors optimize resources and focus on high-risk areas. For businesses, this is an opportunity to review internal control systems, identify gaps in asset management and tax compliance, and avoid unnecessary administrative penalties under Decree 41/2018/ND-CP on administrative sanctions in the field of accounting and independent auditing.
Basic methods for auditing financial statements (Audit procedures)
To gather sufficient and valuable audit evidence, auditors need to flexibly combine the following six basic techniques. Each technique has its own advantages and disadvantages, requiring sharp analytical skills and a deep understanding of industry practices.
Inspection method
This is the most common method of auditing financial statements, involving the examination of accounting records, supporting documents, or physical inspection of assets.
- Check the documents: Compare input/output invoices with the general ledger and subsidiary ledgers to ensure their existence and ownership.
- Physical inspection: Directly participate in the inventory of cash, stock, and fixed assets at the company's warehouses.
Auditors often apply the technique of "vouching" (transferring documents from the books) to check for existence and "tracing" (transferring documents to the books) to check for completeness.
External Confirmation Method
The third-party confirmation method (VSA 505) for auditing financial statements offers a very high level of reliability. Auditors send letters requesting relevant parties to directly confirm balances or contract terms.
| Confirmation subject | Confirmation content |
| Bank | Deposit balances, loans, and guarantee commitments. |
| Client | The balance of accounts receivable at the closing date. |
| Supplier | Accounts payable balance, outstanding debt. |
| Lawyer | Ongoing or potential litigation. |
Recalculation method
This is a procedure for verifying the mathematical accuracy of data in accounting documents or records. This is the auditing method. financial reports This is often used for complex calculations such as:
- Calculate depreciation of fixed assets according to Circular 45/2013/TT-BTC.
- Calculate interest expenses and make provisions for inventory devaluation.
- Calculate the current corporate income tax (CIT) indicators.
Analytical Procedures
Analysis is a financial statement auditing method that requires logical thinking and in-depth understanding of the business sector. Auditors will study the relationships between financial and non-financial data.
For example: Compare the cost of goods sold/net revenue ratio this year to last year. If revenue increases by 20% but the cost of goods sold decreases by 10% without a reasonable explanation for technological or supply chain changes, this is a high-risk indicator of profit fraud.
Observation method
Observation is when an auditor monitors a process or procedure performed by others. For example, observing how warehouse staff seal goods or how the accounting department processes online payment orders. While evidence from this financial statement audit method is only valid at the time of observation, it is very useful for assessing the effectiveness of the internal control system.
Inquiry method
Questioning involves seeking information from knowledgeable individuals inside or outside the entity. While the answers obtained through questioning are often not sufficient evidence, they help auditors guide subsequent testing steps. In financial statement auditing, the auditor's interviewing skills are crucial for extracting sensitive information related to risk management.
The process of applying professional financial statement auditing methods.
A successful audit typically goes through three rigorous phases, ensuring absolute legal compliance and reliability.
Phase 1: Planning and Risk Assessment
At this stage, the financial statement audit method focuses on understanding the business environment and assessing the risk of material misstatement. Auditors determine the materiality level – the threshold at which an misstatement, if exceeded, would alter the judgment of the report's readers.
According to VSA 315, risk assessment procedures include:
- Preliminary analysis of financial statements.
- Observe the actual operating process.
- Interview the Board of Directors about potential business risks.
Phase 2: Conducting the audit (Control testing and substantive testing)
This is a crucial stage in applying a combination of the financial statement auditing methods mentioned in section 2.
- Control test: Check whether the company's internal regulations are actually working effectively.
- Basic testing: Auditors delve into the details of the numbers on the balance sheet and income statement. They will select a sample based on statistical probability to represent the entire data population.
Phase 3: Synthesis, Conclusion, and Report Preparation
After gathering sufficient evidence through various financial statement audit methods, the auditor will compile the uncorrected errors. If these errors exceed the initial materiality level, the auditor will require the company to make corrections.
Finally, an audit report will be issued with one of the following types of opinions:
- Full acceptance opinion: The report reflects the facts accurately and fairly.
- Exceptional opinions: There are a few inconsistencies, but they do not affect the overall report.
- Opposing opinion: The report contains material and pervasive errors and is unreliable.
- Refusing to comment: It was not possible to gather enough evidence to draw a conclusion.
Factors influencing the choice of financial statement audit methodology
Specific characteristics of the business sector
Each industry will require a different focus in its financial statement audit methodology. For manufacturing companies, inventory management and cost calculation are paramount. For service/software companies, verifying revenue recognition and accounts receivable is a top priority.
Internal Control System (ICS)
If a company's internal control system (ICS) is strong, auditors can reduce detailed testing and enhance analytical methods for overall financial statement auditing. Conversely, if ICS is weak, auditors are forced to examine large transactions to ensure safety.
The development of information technology (IT)
Currently, the application of computerized audit methods (CAATs) allows auditors to perform financial statement audits using 100% data instead of manual sampling. Accounting software such as MISA, SAP, or Oracle supports rapid data extraction, helping to improve the accuracy of recalculation procedures and trend analysis.
Comparison table of financial statement auditing methods
Below is a summary table to give you an overview of the applications of each method:
| Method | Reliability | Cost/Time | Typical applications |
| Check the documents | Medium | Short | Compare invoices and supporting documents. |
| Third-party verification | Very high | High | Confirm debt, bank balance. |
| Financial analysis | Medium - High | Short | Assess the reasonableness of the costs. |
| Inventory | Very high | Very high | Check inventory and fixed assets. |
| Recalculate | Very high | Short | Check taxes, interest, and depreciation. |
Common mistakes when applying financial statement auditing methods.
In practice, many auditors or internal control departments often make the following mistakes when implementing the financial statement audit methodology:
- Choose a non-representative sample: Select only the most attractive documents, ignoring transactions that occur at sensitive times (end of year).
- Over-reliance on Inquiry: Completely trusting the accountant's explanation without performing cross-checking procedures.
- Ignore related-party transactions: These transactions often involve risks of transfer pricing or financial fraud.
To address this, adherence to professional ethics and maintaining a professional skepticism are mandatory in all financial statement audit methodologies.
Conclude
Financial statement auditing is an art that combines data science and the critical thinking of experienced professionals. Understanding and correctly applying these methods not only makes a company's financial statements appear "cleaner" to investors but also provides a solid shield against tax audits and inspections by regulatory agencies. In the era of transparent governance, the value of a quality audit goes far beyond the numbers; it builds lasting trust throughout the entire business ecosystem.
If your business is looking for a supplier financial statement auditing services Reputable, dedicated, and with extensive experience in the industry, MAN – Master Accountant Network is a reliable strategic partner. With a team of highly qualified auditors who possess in-depth knowledge of modern financial statement auditing methodologies and the Vietnamese legal system, we are committed to providing optimal auditing solutions, helping businesses confidently develop and thrive.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
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- Email: man@man.net.vn
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Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Financial Statement Auditing Methods
Is it mandatory for auditors to participate in inventory counts?
Yes. According to VSA 501, if inventory is material, the auditor is required to observe a physical inventory count to gather evidence of the existence and condition of the goods.
Why is the verification method more reliable than the questioning method?
Because the information from the verification method comes from an independent third party, outside the control of the business, it is less influenced by the subjective will of the unit's management.
Can analytical methods completely replace document verification?
Generally, no. Analytical financial statement audit methods help identify risks, but to draw conclusions about a specific number, auditors still need detailed evidence from document examination or verification.
