DA NANG UNIVERSITY OF ECONOMICS
FACULTY OF ACCOUNTING

GRADUATION THESIS
Topic: AUDIT OF SALES AND COLLECTION CYCLE AT
RSM VIET NAM AUDITING & CONSULTING LTD
COMPANY – CENTRAL BRANCH

Da Nang, April 2019

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TABLE OF FIGURES
Table 1.1 Assess internal control system...............................................................8
Table 1.2 Test of control for sales transaction.....................................................11
Table 1.3 Test of control for cash collection transactions...................................12
Table 2.1 Financial capacity of RSM Viet Nam...................................................18
Table 2.2 Preliminary analytical procedure........................................................25
Table 2.3 Lead schedule procedure for revenue..................................................30
Table 2.4 Agreed to GL procedure for revenue....................................................31
Table 2.5 Analytical procedure for revenue – procedure 1..................................32
Table 2.6 Analytical procedure for revenue – procedure 2..................................33
Table 2.7 Agreed to tax return procedure............................................................33
Table 2.8 Assurance factor.................................................................................35
Table 2.9 Related party procedure for revenue...................................................37
Table 2.10 Lead schedule procedure for AR........................................................38
Table 2.11 Agreed to GL procedure for AR.........................................................39

Table 2.0.12 Analytical procedure for AR – procedure 1....................................39
Table 2.13 Analytical procedure for AR – procedure 2.......................................40
Table 2.14 Analytical procedure for AR – procedure 3.......................................40
Table 2.15 Analytical procedure for AR – procedure 4.......................................40
Table 2.16 Analytical procedure for advance from customer..............................41
Table 2.17 Aging test procedure..........................................................................41
Table 2.18 Circularization procedure.................................................................44
Table 2.19 Final analytical procedure for revenue.............................................45
Table 2.20 Final analytical procedure for AR.....................................................46

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TABLE OF CONTENT
INTRODUCTION................................................................................................1
CHAPTER 1: THEORETICAL BASIC ABOUT SALES AND COLLECTION
CYCLE.................................................................................................................2
1.1. Overview of sales and collection cycle..........................................................2
1.1.1. Definition................................................................................................2
1.1.2. Main functions in the cycle.....................................................................2
1.1.3. Overview about revenue.........................................................................4
1.1.4. Overview about trade receivables account..............................................5
1.2. Internal control for sales and collection cycle................................................5
1.3. Auditing of sales and collection cycle............................................................8
1.3.1. The planning phase of auditing of sales and collection cycle..................8
1.3.2. The implementation of auditing sales and collection cycle.......................10
1.3.3. The completion phase...........................................................................16
CHAPTER 2: AUDITING OF SALES AND COLLECTION CYCLE AT RSM
VIET NAM AUDITING & CONSULTING LTD COMPANY – CENTRAL
BRANCH............................................................................................................17

2.1. Introduction about RSM Viet Nam Auditing & Consulting Ltd Company –
Central Branch................................................................................................17
2.1.1. Strategic direction and mission of RSM Vietnam.................................17
2.1.2. Human resource of RSM Vietnam........................................................18
2.1.3. Financial capacity of RSM Viet Nam....................................................18
2.1.4. Personal chart of RSM Vietnam - Central Branch.................................19
2.1.5. Services of RSM Viet Nam...................................................................19
2.2. Auditing of the Sales - Collection cycle is conducted by RSM Viet Nam
Auditing & Consulting Ltd Company - Central Branch..................................21
2.2.1. Client acceptance & Re – valuation stage.............................................21
2.2.2. Pre – Planning stage..............................................................................22
2.2.3. Planning phase......................................................................................28
2.2.4. Implementation phase...........................................................................30
2.2.5. Completion and Reporting Phase..........................................................45

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CHAPTER 3: SOME RECOMMENDATIONS ON AUDIT OF SALES AND
COLLECTION CYCLE AT RSM VIET NAM AUDITING & CONSULTING
COMPANY Ltd – CENTRAL BRANCH...........................................................47
3.1. Recommendation on auditing of sales and collection cycle at RSM Viet Nam
– Central Branch.................................................................................................47
3.2. Some limitations and solutions.....................................................................48
CONCLUSION...................................................................................................54
REFERENCES....................................................................................................55

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LIST OF ACRONYMS
GL

General ledger.

AP

Analytical procedure

AR

Account receivables

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INTRODUCTION
Today, auditing activities in Vietnam are constantly growing and becoming
more and more popular in economic life. This is an inevitable trend before the
strong development of the economy and the wave of foreign direct investment as
well as the establishment of joint stock companies. Results of auditing financial
reports serve many objects such as shareholders, investors, banks, tax agency.
Among the business cycles, sales and collection cycles are one of the main
cycles and receive great interest to users of financial statements. Because in the
cycle consists of two important account that revenue and account receivable
reflect the operational efficiency and financial situation of an enterprise.
Therefore, auditors are often very cautious when auditing items in this cycle with
the goal of providing users with a financial statement with an accurate view of
the operation of an enterprise.
In the content of this essay, based on the knowledge learned and during the

internship time at RSM Viet Nam Auditing & Consulting Ltd Company, I would
like to present and complete the auditing of sales and collection cycle at RSM
Viet Nam – Central Branch with the title of thesis: " Audit of sales and
collection cycle at RSM Viet Nam Auditing & Consulting Ltd Company”.
The content of thesis include three sections as follows:
Chapter 1: Theoretical basic about Sales and Collection cycle.
Chapter 2: Auditing of Sales and Collection cycle at RSM Viet Nam Auditing
& Consulting Ltd Company”.
Chapter 3: Recommendation on auditing of Sales and Collection cycle at RSM
Viet Nam Auditing & Consulting Ltd Company.

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CHAPTER 1:
THEORETICAL BASIC ABOUT SALES AND
COLLECTION CYCLE
1.1. Overview of sales and collection cycle
1.1.1. Definition
The sales and collection cycle is one of the main cycles and plays an important
role in the operation of a business. Revenue from sales activities is the main
activity creating cash flow for businesses. “The sales and collection cycle
involves the decisions and process necessary for the transfer of the ownership of
goods and services to customers after they are made available for sale. It begins
with a request by a customer and ends with the conversion of material or service
into an account receivable, and ultimately into cash.”(Arens, et al 2015)
1.1.2. Main functions in the cycle
Before assessing the internal control system as well as design audit procedures
for test of control and substantives test, auditors need to understand the functions
in the sales cycle.

In Auditing & Assurance Services, 15 th Edition, the sales and collection cycle
include eight following main functions:
 Processing customer orders: A customer’s request for goods initiates the
entire cycle. Legally, customer order is an offer to purchase goods under
specified terms. The receipt of a customer order often results in the immediate
creation of a sales order. In this function, Customer Order and Sales Order are
documents used, in which, customer order is a request of customer for goods and
sales order is often used to indicate credit approval and authorization for
shipment.
 Granting Credit: Before goods are shipped to customer, credit for sales on
account must be approval by an appropriate authorized person. Weakness in
credit approval is one of the reasons that result in excessive bad debt and account
receivables cannot be recovered. Credit approval on the sales order is an
indication often serves as the approval to ship the goods.
 Shipping Goods: Most enterprises recognize sales when goods are shipped. A
shipping document is prepared to initiate shipment of the goods, showing the
description of the merchandise, the quantity shipped, and other relevant data. Bill
of lading is a one type of shipping document, which is a written contract between
the buyer and the seller of shipment of goods and the receipts. The bill of lading
is often transmitted electronically, once goods have been shipped, and
automatically generates the related sales invoice as well as the entry in the sales
journal.
 Billing Customers and Recording Sales: The most vital aspects of billing
are:
- All shipments made have been billed ( Assertion: Completeness)

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- No shipment has been billed more than once ( Assertion : Occurrence)

- Each one is billed for the proper amount (Assertion : Accuracy)
In this function, there are related documents as follows:
- Sales Invoice: A sales invoice is a document or electronic record indicating
the description and quantity of goods sold, the price, freight charges, insurance,
terms, and relevant data. The sales invoice is the method of indicating to the
customer the amount of a sale and the payment due date.
- Sales Transaction File: This is a computer – generated file that consists all
sales transactions processed by the accounting system for a period, which could
be a day, week, or month.
- Sales Journal: This is a report generated from the sales transaction file that
consists of the customer name, amount, date and account classification or
classifications for each transaction.
- Account Receivable Master File: This is a computer file used to record cash
receipts, sales returns and allowances and individual sales for each customer and
to maintain account balances of customer. The sales, sales returns and
allowances, and cash receipts will be updated on account receivable master file.
- Account Receivable Trial Balance: This list or report indicates the amount
receivable from customers at a point in time. It is prepared directly from the
accounts receivable master file and is usually an aged trial balance.
- Monthly Statement: This is a document sent by mail or electronically to each
customer indicating the beginning balance of their accounts receivable, the
amount and date of each sales, cash payments received, credit memos issued, and
the ending balance due.
 Processing and Recording Cash Receipts: This function includes receiving,
depositing, and recording cash. It is important that all cash receipts are deposited
in the bank at the proper amount on a timely basic and recorded in the cash
receipts transaction file. This file is used to prepare the cash receipts journal and
update the accounts receivable and general ledger master files.
Cash receipts transaction file and Cash receipts journal or listing are related
document in this function. Cash receipts transaction file consist of cash receipts

transaction processed by the accounting system for a period. While, cash receipts
journal or listing is generated from the cash receipts transaction file and includes
all transactions for a time period.
 Processing and Recording Sales Returns and Allowances: The seller often
accepts the return of the goods or grants a reduction in the charges when a
customer is dissatisfied with the goods. The enterprise will prepares a receiving
report for returned goods and returns them to warehouse. Returns and allowances
are recorded in the sales returns and allowances transaction file, as well as the
accounts receivable master file.

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 Writing Off Uncollectible Account Receivable: The enterprise must write
off if an amount cannot collect. Typically, this occurs after a customer files for
bankruptcy or the account is turned over to a collection agency.
 Providing for Bad Debts: Normally, sales transactions are carried out on
account, so bad debts will arise. For the amount that enterprise do not expect to
collect, accounting principles require them to record bad debt expense.
1.1.3. Overview about revenue
1.1.3.1. Definition
According to VAS 14, “revenue means the total value of economic benefits
gained by an enterprise in an accounting period, which arise from the
enterprise’s normal production and business operations, contributing to
increasing the owner’s capital.”
1.1.3.2. Time of revenue recognition according to VAS 14
 The enterprise has transferred the majority of risks and benefits associated
with the right to own the products or goods to the buyer. Enterprises must clearly
determine when to transfer most of the risks and economic benefits of the
product, usually this time coincides with the time when the enterprise transfers

ownership to customer.
 The enterprise no longer holds the right to manage the goods as the goods
owner, or the right to control the goods. In case the enterprise still holds the right
to manage goods, whether or not the goods are transferred to customer, it is not
recognized as a revenue of the enterprise.
 Revenue has been determined with relative certainty.
 The enterprise has gained or will gain economic benefits from the good sale
transaction. The revenue recorded may be a benefit received by the business
(money collected immediately or via bank transfer) or not received (a receivables
from customers) but make sure that it is the amount that the enterprise certainly
receive in the future.
 It is possible to determine the costs related to the goods sale transaction.
Revenue and expenses related to the transaction must be recorded simultaneously
according to the matching principle.
1.1.3.3. Audit objectives for sales transaction
 Occurrence: Sales transaction are recognized by the enterprise and actually
occur in the accounting period as well as belongs to the enterprise.
 Completeness: All sales transaction must be fully recorded in the accounting
books.
 Valuation: Revenue is reflected the correct amount
 Accuracy: Sales is calculated and recorded accurately for the amount.

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 Presentation and disclosure: Revenue is presented and fully and properly
declared by the enterprise.
1.1.4. Overview about trade receivables account
1.1.4.1. Definition
According to Circular 200, “account receivables used to reflect receivable

amount and the situation of payment of receivables of enterprises with customers
about the sale of products, goods, investment properties, fixed assets, financial
investments and service provision”.
1.1.4.2. Characteristics of account receivables.
 Account receivables is an important accounts on the balance sheet, because
there is a close relationship with the business results of the enterprise and the
provision for doubtful debts is often based on the estimate of the board of
directors should be very difficult to check.
 Financial statements users usually rely on the relationship between liabilities
and asset to assess the solvency of enterprises. As a result, there is always a
possibility that the enterprise will record the increase in customer receivables
compared to the actual amount in order to rise the solvency of the enterprise.
1.1.4.3. Audit objectives of trade receivables
 Existence: Trade receivables are recognized as true on the reporting date.
 Completeness: All receivables must be fully recorded in the accounting
books.
 Rights: Account receivables at the end of the accounting period are under the
ownership of the business.
 Valuation: Provision for bad debts are calculated and properly recorded.
 Accuracy: Receivables must be recorded accurately.
1.2. Internal control for sales and collection cycle
An internal control system is designed and operate effectively on the sales cycle
requires a separation of functions, clear division between department and
individual as well as approval of competent authorities. The higher level of
responsibility division, the more likely it is that mistakes can be detected by
comparing data between different sections.
With its important role, sales and collection cycles require the establishment of
appropriate controls to support the achievement of key cycle objectives. The
sales and collection cycle include main processes as follows:
 Processing customer purchase order: Customer order must have proper

signature of and stamped by responsible person of customer. If customer order is
received by telephone, email, fax, there are internal controls to ensure the
legitimacy of customer purchase order. Authorized person must approve the

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quantity, description, and related information for goods ordered by customer.
After that, sales order prepared and attached to customer purchase order then is
passed to the credit department for credit approval.
 Approving credit limit: Each enterprise needs to create a clear selling policy.
This is the legal basis as well as conditions for agreement to determine rights and
responsibilities between the parties. Credit department periodically evaluates
customer’s ability of payment, update information about financial position,
payment ability and credit worthiness of customer. This is an important control
procedure to ensure the ability to recover receivables. A number of other
procedures are also applied such as making a list of regular customers and always
updating information about the financial situation, solvency and reputation in
customers' payment. For new customers, the business environment is judged to
be high risk, a rather effective procedure that requires customers to mortgage
assets or deposit. Besides that, credit granting function is separated from sales
and accounting functions.
 Issuing and shipping goods: Approval sales order is used to generate the
three-copy Goods Dispatch Note. These documents then are routed through
warehouse where the storekeeper issues the stocks to shipping department.
While, shipping function must be independent of the other functions and
shipping document is pre-numbered as well as is used to prepare sales invoice.
Shipping personnel prepares the three-copy Bill of Lading/delivery note and
ships merchandises to customer, namely: One original copy is sent with the
shipment, the second copy is sent to sales department for billing, the other is filed

in sequence in the bill of lading file. Shipping document has a sales invoice
number printed on the bottom left corner and periodically, independent personnel
check the quantity of goods shipped with that billed.
 Preparing and recording sales invoices: Invoices are made by an
independent department with the sales department and accounting department
signed by the founder and legal representative of the enterprise and the customer.
It is possible to replace the signature of a modern person by law by suspending
the seal, in case the phone sales may not require a signature of the customer. In
addition, when billing needs to:
- Check the relevant documents: orders, sales orders, delivery notes, shipping
document.
- Write the price into the invoice based on the current price list of the enterprise.
The price must be approved including shipping, discount and payment terms. The
price review is aimed at avoiding loss of revenue, stimulating satisfactory
increase in revenue, legal and effective settlement of benefits relations between
parties in the trading relationship.
- Calculate the amount for each type and for the invoice.

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- Invoices with sequential numbering can both prevent omission and avoid
overlapping receivables, sales records.
- Sales invoices are usually made into 3 copies: originals kept at the accounting
department to monitor revenue and trade receivables, the second copy
consignment delivered to customers, the third transfer to the sales department to
monitor revenue and trade receivables, and compare with accounting department.
- Invoices should be checked before sending to customers. Great value invoices
should be examined by an independent person.
 Receiving customer’s payment: There are two cases of payment when selling

goods, payment by cash and sale on account.
- For payment by cash: Sales and collection functions should be separated. For
service businesses, it is possible to assign an employee who is independent of the
provide service department to set up a check or bill or use a service ticket. The
bills, bills, service tickets need to be numbered in advance. For retail businesses:
use a cash register or ask a salesperson to make a daily sales report and compare
it with the amount of money deposited into the fund during the day.
- For the granting debt: To closely monitor the collection of money, it is
necessary to request the sale approval department to periodically report the
receivable debt according to each age group in order to take debt collection
measures, normally this work assigned to the sales department. Periodically send
a notice of debt to customers, it will help the enterprise urging customers to
quickly pay the debt, on the other hand, notifying the debt is also a basis for
comparing debts with customers to help the enterprise verify timely adjust the
differences (if any) between the data between the two parties. Procedures for
sending debt notices can be made monthly, quarterly or year-end in various forms
such as fax, mailing.
 Processing sales returns and allowances: Enterprises need to regulate trade
discount policies, review returned products and reduce the price of goods.
Enterprises need to have an independent department responsible for receiving,
approving and deducting receivables related to the above items.
- For returned goods, when delivering goods, the purchaser must make an
invoice stating clearly: the goods are returned to the seller due to improper
specifications and quality, or together with the seller, clearly stating: goods type
and quantity, value of returned goods by invoice number ...
- For discounts or trade discounts (arising out of invoices), enterprises must
make adjustment invoices clearly stating which invoices are adjusted.
 Providing for doubtful debts and writing off uncollectible receivables: The
preparation of a periodic aged accounts receivable trial balance for review and
follow up by appropriate management personnel. Written off of receivables are

approved by an authorized personnel independent of accounting function.

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1.3. Audit of sales and collection cycle
1.3.1. The planning phase of auditing of sales and collection cycle
1.3.1.1. Assess internal control system
Understand internal control system of client is a vital step because it involves
making an audit plan for the client. Depending on the form of the business, each
enterprise's internal control system is different. Therefore, when looking at
information on the internal control system of customers, auditors need to rely on
the specific situation in each enterprise to have the most accurate assessment of
the internal control system at the enterprise.
Auditors need to know the characteristics of the cycles, specific business
characteristics, control environment of the client on the sales cycle in order to
assess inherent risks and control risks for revenue and receivables from client.
Usually, auditors conduct assessment of internal control systems through the
following questionnaire with some questions as follows:
No.
1
2
3
4
5
6
7
8
9
10

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Question
Is the treasurer independent of accountants?
Is the receipt numbered?
Is there a check on the validity of the receipt?
Is there a comparison between the cash book and
sales journal?
Is the granting credit approved?
Is there an annual debt report?
Are invoices checked before delivered to
customers?
Is there a clear regulation on whether all goods
sent must be invoiced and recorded as revenue?
Is the implementation of price, discount policies
strictly inspected?
Is there any periodic debt comparison?
Is there any comparison of the summary account
receivables with the account receivables general
leger?

Yes

No

The answers "Yes" often represent an effect internal control system. Based on the
material of each item, the auditor will make general conclusions about the
internal control system of that client. In addition to the above questionnaire, the
auditor can perform the technique of "walk through” that is the auditor will select
several operations and follow step by step to see if the actual takes place just like

the questionnaire or not. Otherwise, adjust the questionnaire to correct the reality.

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Table 1.1 Assess internal control system


1.3.1.2. Preliminary assessment of control risks
Preliminary assessment of control risk is one of the most vital step of the
planning phase. With a risk-based approach, the assessment of control risks at a
low or high level affects the audit approach and scope that auditors need to
perform. Specifically, if the control risk is preliminarily assessed as low (the
internal control system is designed and operated effectively) and vice versa.
Since then, when the control risk is at a low level, the auditor will rely on internal
control system approach, that is, to carry out test of control mainly and narrow
the scope of the substantive test to check whether the company's internal control
system is really effective. On the other hand, when control risk at a high level,
the approach that the auditor will choose is the substantive tests approach
(including analytical procedures and test of detail) and less test of control.
In order to assess control risks in the sales and collection cycle, auditors need to
examine key control activities for sales, from there determine the key controls
and deficiencies for sales. According to (Arens et al, 2015), the key control
activities for sales are illustrated in the flowchart as follow (Refer to Appendix
01)
The key control are identified as follows:
(1) Adequate Separation of Duties: This is a control activity that prevents errors
and frauds. The mismatch in separation of duties is a weakness of the internal
control system as well as facilitating misstatements. For example, with flowchart
of sales and cash receipts, controller need to compare accounts receivable master
file total with general ledger, that independent of those who update cash receipts
transactions file.

(2) Proper Authorization: In order to ensure a reasonable and valid transaction,
such transaction must be approved by the upper management. Authorization is an
important control procedure to prevent the risk of error and fraud that may occur
with respect to performing a transaction. According to (Arens, et at 2015), the
auditor is concerned about authorization at three key points:





Before a sale take place, credit must be authorized.
Goods should be shipped only after proper authorization.
Prices, including basic terms, freight, and discounts, must be authorized.

For example, in flowchart, before preparing sales order, order must be approved
by President.
(3) Pre-numbered Documents: This control is meant to prevent both the failure
to bill or records sales and the occurrence of duplicate billings and recordings. To
use this control effectively, a billing clerk will file a copy of all shipping
documents in sequential order after each shipment is billed, while someone else
will periodically account for all numbers and investigate the reason for any
missing document.

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1.3.2. The implementation of audit sales and collection cycle
1.3.2.1. Design of Test of control
A. TEST OF CONTROL FOR SALES TRANSACTION.
Test of control for sales transactions are shown in the following table below:

Audit objectives

Key controls and test of controls
Credit is approved automatically by computer by
comparison to authorized credit limit  Examine
customer order for evidence of credit approval.

Sales are supported by authorized shipping
Recorded sales are for documents and approved customer orders 
shipments actually made Examine sales invoices for supporting bill of lading
to non - fictitious and customer order.
customers
Batch totals of quantities shipped are compared with
(Occurrence)
quantities billed  Examine file of batch totals for
initials of data control clerk.
Statements are sent to customers each month 
observe whether monthly statements are sent.

Existing sales
transactions are
recorded
(Completeness)

Shipping documents are pre – numbered and
accounted for weekly  Examine the sequence of
shipping documents.
Batch totals of quantities shipped are compared with
quantities billed  Examine file of batch totals for
initials of data control clerk.

Unit selling prices are obtained from the price list
master file of approved prices  Examine the
approved price list for accuracy and proper
authorization.

Recorded sales are for
the amount of goods Batch totals of quantities shipped are compared with
shipped
and
are quantities billed  Examine file of batch totals for
correctly billed and initials of data control clerk.
recorded. (Accuracy)
Statements are sent to customers each month 
Observe whether monthly statements are sent.
Accounts receivable master file is reconciled to the

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general ledger on a monthly basis  Examine
evidence that accounts receivable master file is
reconciled to the general ledger.
Sales are recorded on Shipping documents are accounted for weekly 
the
correct
dates Compare date of recording of sales in sales journal
(Cutoff)
with shipping documents.
Table 1.2 Test of control for sales transaction
B. TEST OF CONTROL FOR CASH COLLECTION TRANSACTIONS

Audit objective

Key controls and test of controls
Accountant independently reconciles bank account
 Observe whether accountant reconciles bank
account.

Cash receipts are
Batch totals of cash receipts are compared with
deposited and recorded computer summary reports  Examine file of batch
at the amounts received. totals for initials of data control clerk.
(Accuracy)
Statements are sent to customers each month 
Observe whether monthly statements are sent.
Accounts receivable master file is reconciled to the
general ledger on a monthly basis  Examine
evidence that accounts receivable master file is
reconciled to the general ledger.
Cash receipts are
recorded on the correct
dates (Cutoff)

Recorded cash receipts
are for funds actually
received by the
company (Occurrence)

Procedures require recording of cash on a daily basis
 Observe unrecorded cash receipt at a point of
time.

Accountant independently reconciles bank account
 Observe whether accountant reconciles bank
account.
Batch totals of cash receipts are compared with
computer summary reports  Examine file of batch
totals for initials of data control clerk.
Cash receipts are pre numbered in sequence 

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Examine the sequence of cash receipts.
Cash received is
recorded in the cash
receipts journal
(Completeness)

Batch totals of cash receipts are compared with
computer summary reports  Examine file of batch
totals for initials of data control clerk.
Statements are sent to customers each month 
Observe whether monthly statements are sent.

Table 1.3 Test of control for cash collection transactions
1.3.2.2. Design of Substantives test for revenue
In the sales and collection cycle, substantives tests are usually designed for two
key accounts in the cycle, which are revenue and receivables.
A. ANALYTICAL PROCEDURES
- Analyzing the volatility of total revenue, revenue by each type of activity
between this year and the previous year and then, explain abnormal fluctuations

and assessing risks of material errors due to fraud.
- Compare sales revenue and service provision of each product / industry group
between planning and implementation in order to understand and collect
explanations for differences.
- Compare sales revenue and service provision between months (quarters) in the
year or period to consider whether or not the fluctuation of sales and service
provision is in line with the business situation of the company (in general market
situation, sales policies, business situation of unit in particular). Note the
comparison of revenue in the last months of the year with the beginning months
of the year.
- Compare gross profit margin on revenue of this period with the period before
and between months of the year to understand and collect explanations for
unusual fluctuations. Pay attention to the factors affecting the change: price, sales
volume and cost of goods sold.
B. TEST OF DETAIL
 Test of occurrence of sales transaction (vouching)
Vouch recorded sales transactions back to source documents such as customer
orders and shipping documents:
- Compare quantities billed and shipped with customer orders.
- Special care should be given to sales recorded at the end of the reporting
period.

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- Scan sales journal for duplicate entries.
 Test of completeness of revenue (tracing)
Use of pre – numbered document is important. Auditor will take a sample of
shipping documents and trace to the sales journal to test the completeness of
recording of sales transaction.

 Test of accuracy of revenue
Select some invoices to check the following:
- Reconciliation with bills of lading, orders, sales orders…on quantity and
categories of consumer goods.
- Compare with approved price list, contract…to check the selling price.
- Check the calculation on the invoice.
- Check whether discounts, discounts are in line with the sales policy of the
business.
- In case of selling goods in foreign currency, the auditor should check whether
the conversion of Vietnamese currency is correct according to the actual
exchange rate at the time of transaction.
 Test of cut – off of revenue : Auditor will take a sample of sales recorded
during cut – off period and vouch to sales invoices and shipping documents to
determine whether sales transaction are recorded in proper period or auditor may
also review terms of sales contracts
 Test of disclosure information related revenue such as: Accounting policies
applied in revenue recognition; revenue of each type of transaction and revenue
from exchanging goods or services according to each type of transaction.
1.3.2.3. Design of Substantive test for account receivables
A. ANALYTICAL PROCEDURES
Auditor compare the receivable balance of the current year with the previous
year and combined with the analysis of the fluctuation of net revenue, the
provision for doubtful debts over two years. On the other hand, auditor can
compare the turnover ratio of receivables and the average number of days of
collection this year with the previous year, with the credit policy of sales in the
period of the unit to assess the reasonableness of the year-end debt balance as
well as the possible redundancy (if any).
B. TEST OF DETAIL
(1) Aging test
- Because trade receivables are reported at net realizable value, auditor must

evaluate management estimates of uncollectible accounts. Auditor will obtain or

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prepare the schedule of aged accounts receivable. If the schedule is prepared by
client, it is tested for mathematical and ageing accuracy.
- Ageing schedule can be used to:
+ Agree detail to control account balance
+ Select customer balances for confirmation
+ Identify amount due from related parties for disclosure
+ Identify past - due balances
- After that, the auditor evaluates percentages of uncollectible and the auditor
then recalculates balances in the allowance account.
(2) Confirmation receivables with customers
- Confirmations provide for auditor reliable external evidence about the
existence of recorded accounts receivable as well as completeness of cash
collections, sales discounts, and sales returns and allowances.
- Confirmations are required by auditing standards unless one of the following
applies:
+ The receivables are not material
+ The use of confirmations would be ineffective
+ The combined inherent and control risk is assessed as low and sufficient
evidence is available from using other substantive tests.
- There are two type of confirmations that auditor will prepare to send to
customers.
+ Positive confirmations: This type requires a response from customers.
Customers are asked to agree the amount on the confirmation letter with their
accounting records and to respond directly to the auditor whether they agree with
the amount or not. If customer does not respond, auditor must use alternative

procedures.
+ Negative confirmations: Customers are asked to respond only if they disagree
with the balance (non – response is assumed to mean agreement). If customer
does not respond, less expensive since there are no additional procedures. May
be used when all of the following are present:
 Confirming a large number of small customer balances.
 Combined inherent and control risk for receivables is assessed as low.
 Auditor believes that customers will give appropriate attention to
confirmations.

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 Prepare a summary table and summarize the results: Including number
and amount of replies; sample rate is smaller than population and the
relationship between audit data and book data.
 Follow – up procedures for non – responses: If customer does not respond
to positive confirmation request, the auditor may send a second, or even third.
But if customer still does not respond, auditor will use alternative procedures.
The alternatives procedures conducted by auditor are examine the cash receipts
journal for cash collected after year – end in order to ensure receipts is year – end
receivable, not subsequent sale. Another procedure is that examine documents
supporting receivable (customer purchase order, sales invoice, shipping
documents) to determine if sale occurred prior to year – end.
 Follow – up procedures for exceptions noted: Customers are asked to
agree the amount on the confirmation letter to their accounting records and
differences are called exceptions. The reasons for exceptions are timing
differences; customer errors and client misstatement. Auditor must determine the
reason for the exception due to misstatements are projected to the population of
receivables.

(3) Checking the establishment of bad debt provisions:
 Requesting an accountant of an enterprise to set up a contingency analysis
table which is difficult to collect and check the data on this table.


Consider overdue and unusually large sales.

 Review the confirmation letters from the business customers, especially the
disputes in dispute.
 Review customer-related events of the business arising after the end of the
year.
 Make a list of suspicious customers who will not be able to claim, the reason
and estimate the level of provision needed.
 Based on the collected information, and the current regulations on making
provision for bad debts, the auditors set up a table of contingencies to be set up
and compare with accounting data.
(4) Check details of customer receivables that are being mortgaged
 Evidence of collateral for customer receivables can be collected through a
confirmation letter.
 Analysis of Account 635 (details of interest expenses) helps auditor detect
mortgaged loans, from which the operations of receivables receivable are
released.


Read meeting minutes and related documents or interview staff.

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(5) Evaluation of the presentation and disclosure of receivables on financial

statements:


Considering customer receivables that are separate from other receivables.

 Current and non – current accounts receivable should be presented separately
on the Balance Sheet
 It may be noted that if the account details must be collected from customers
with available balances, it must be presented in the payable debt item in the
Balance Sheet.
 Review other regulations on presentation and disclosure of account
receivables on financial statements.
1.3.3. The completion phase
In this stage, auditors will perform a number of procedures before giving an audit
opinion such as:
-

Review contingent liabilities

-

Review subsequent events

-

Evaluate the going – concern assumption

-

Accumulate final evidence


-

Evaluate audit results and issue audit report.

For sales and collection cycle, auditor will focus on implementing related
procedures such as checking subsequent event of sales transaction as well as
accounts receivable. In order to review that event, auditor can use audit test such
as: Test the collectible of accounts receivable by reviewing subsequent period
cash receipts to evaluate the valuation accounts receivable.
On the other hand, auditor can inquire of management or examine minutes issued
subsequent to the balance sheet date. In addition, in this completion stage, auditor
can use analytical procedures to analysis to analyze the volatility of accounts
receivable and revenue to compare the difference between data before auditing
and after auditing.
Summary of chapter 1:
Chapter 1 indicates theoretical basic of sales and collection cycle including
overview, internal control and audit process of sales and collection cycle. More
importantly, this theoretical basic provides the reader with understanding of how
to audit the sales and collection cycle and it is the basis for comparison with
actual audit.

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CHAPTER 2: AUDITING OF SALES AND COLLECTION CYCLE AT
RSM VIET NAM AUDITING & CONSULTING LTD COMPANY –
CENTRAL BRANCH.
2.1. Introduction about RSM Viet Nam Auditing & Consulting Ltd
Company – Central Branch.


RSM Viet Nam Auditing & Consulting Ltd Company ("RSM Vietnam") is one of
the top 7 organizations providing auditing, financial and tax consulting services
in Vietnam and is an official member of the international RSM system.
RSM Vietnam was founded in 2001 by professional auditors and consultants who
have been working in the audit and consulting industry since the early days when
these services were newly formed in Vietnam. These advantages allow RSM
VietNam to gather a strong human resource that can provide services that are
suitable to the characteristics of Vietnam and follow the top quality standards in
the world.
Currently, RSM Vietnam has three offices in Ho Chi Minh City, Da Nang and Ha
Noi, with more than 250 professional staff and more than 30 people with a
Certified Public Accountant (CPA) issued by the Ministry of Finance. RSM
VietNam provides auditing and consulting services for over 700 domestic and
foreign customers every year such as: State-owned corporations, foreign-invested
enterprises and private economic groups. , joint stock companies, listed
companies and international projects funded by the World Bank, Asian
Development Bank, United Nations Development Program (UNDP) ...
2.1.1. Strategic direction and mission of RSM Vietnam.
Strategic direction

17


“To be one of the leading professional services firms in Vietnam, by reputation,
specialization and market position.”
Mission


Strongly assist clients to achieve their objectives in all business environment;




Committed to provide great quality services in a professional manner;



Respect professional ethics;

Committed to provide strong learning environment for staff to better serve
clients during their development and entering the globalization; create a working
environment which promotes professionalism and teamwork;


Create the difference in services provided to clients; continue developing new
services lines;




Apply new technology in all management and operation processes;



Bring highest possible benefits to clients, staff, investors and society.

2.1.2. Human resource of RSM Vietnam.
The members of the Board of Directors and the deputy head of the company, who
have worked for many years in the world's largest auditing companies in
Vietnam, are good professionals, seasoned and experienced in field of auditing

and consulting. RSM Viet Nam‘s key members are all good masters of business
administration (MBA) and masters at prestigious universities in the world. They
have attended many audit and advisory courses in regional and Asian countries
organized by KPMG, E&Y, Deloitte and PwC, or participated in international
professional certifications such as CPA Australia, ACCA, CFA. This good human
resource not only helps RSM Viet Nam continue to attract and develop our staff,
but also helps meet the growing demands for superior quality for our customers
2.1.3. Financial capacity of RSM Viet Nam
No

Items

2015

2016

Average

5

Revenue

69.521.216.05
2

90.812.871.07
8

75.323.886.134


6

Profit before tax

1.915.110.012

3.193.240.268

2.196.037.072

7

Profit after tax

1.444.223.682

2.318.931.758

1.607.069.127

Since its founding, RSM Vietnam Auditing & Consulting Company has been
growing steadily, the revenue of the following year is always higher than the
previous years. In 2016, with revenue of more than 90 billion VND, RSM

18


Vietnam Auditing Company was in the Top 06 largest auditing companies in
Vietnam.


2.1.4. Personal chart of RSM Vietnam - Central Branch
TRAN DUONG NGHIA

DANG XUAN CANH

2.4 Financial capacity of RSM Managing
Viet Nam Partner
PartnerTable
– President

KIM VAN VIET
Vice president

AUDIT TEAM
Personal chart of RSM Viet Nam – Central Branch
2.1.5. Services of RSM Viet Nam
Audit & Assurance Services
Assurance service of RSM Vietnam not only has auditing service for financial
statements. Other forms of corporate reporting require external independent
assurance to increase the credibility of those reports. Therefore, with the use of
tested professional methods, RSM Vietnam also offers a variety of other
assurance services that suit the specific reporting needs of customers.
Auditing financial statements is drafted in accordance with Vietnamese
Accounting Standards, International Accounting Standards.


Contract for implementing pre-agreed procedures for financial information
(VSA 4400)





Capital construction audit (VSA 1000)

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