Why we have to find out materiality of an audit, because we can not audit individual

transaction so we have to know what is material of company’s accounts

Do chúng ta k thể kiểm toán hết tất cả các tài khoản trong sổ cái của KH nên chúng ta
phải tìm ra các tài khoản nào la trọng yếu và mức trọng yếu như thế nào để kiểm
Một thông tin đc coi là trọng yếu nếu cái iệc sử dụng thông tin đó sẽ ảnh hưởng đến việc
ra quyết định của người sử dụng thông tin đó
VD: thông tin trọng yếu : cty bán 50tr$ giá trị sản phẩm cho khách hàng => ghi nhận vòa
doanh thu
Thông tin k trongjn yếu : cty bán 200$ giấy cho phòng in
Performance materiality đc sử dụng cho các tài khoản và giao dịch riêng lẻ để xác định
xem nó có trọng yếu ko
Materiality thresgold of 1% pre-tax net income and performance materiality(PM) that is
equal to 75% of the materiality => means account balances ( số dư tài khoản) in the
General ledger that are larger than PM are considered material

What is a system of internal controls?

You might remember at the beginning of this program that, when we issue an
audit opinion, we are issuing:

1. an opinion on the financial statements themselves, and

2. an opinion as to the effectiveness of management’s system of internal
controls.

This is the system that helps to ensure that Ashbourne’s records are correct to
begin with.

Internal controls are processes designed to ensure management has its own
procedures in place to run and monitor the business. These include controls
over operations, reporting, and information technology.

The idea is that it’s management’s responsibility to establish and monitor these
controls, not rely on outsiders such as auditors to protect the company.

Business processes ( chu trình kinh doanh)

As part of evaluating management’s internal controls, our team of auditors first needs to
understand the different business processes and how they relate to the overall financial
reporting environment. ( sự khác nuhau giữa môi trường kinh doanh và chúng liên hệ
như thế nào với mô trường báo cáo tài chính)

Simply, business processes are the steps taken in each part of Ashbourne’s business, not
just the accounting processes.

It’s a series of steps performed to achieve a concrete goal, such as purchasing raw
materials or approving or processing a customer order.

Examples of common business processes

1. Customer Service: Once sales orders have been generated, there needs to be a team
that processes orders so products and services can be provided to customers. They also
help manage situations such as missing shipments or technical assistance of any kind.

2. Operations: Operations include supply chain management. Operations personnel keep

up with stock and inventory management to supply the actual deliverables.

3. Finance: Different departments may handle the incoming and outgoing flow of cash,
such as accounts receivable collections. This means paying employees and vendors on
time, but it also means keeping track of expenses to monitor profits.

4. Production: Production business processes can be physical manufacturing processes,

but they might also be services that are delivered via human professionals or even
technology solutions in non-manufacturing companies.

5. Sales: This one can make or break a business. It’s the source of revenue generation. A
sales business process might include a lead generation system, tracking of proposals, a
system to provide quotes, and sales funnel tracking.

Now you know a bit about business processes, let’s take a look at internal controls.

Business processes and internal controls

Internal controls are specific steps in a business process to ensure the process is working
as it should. There are many types of internal controls, but they all attempt to do the
following:
  Ensure the reliability and integrity of information
 Comply with policies, plans, procedures, laws, or regulations
 Protect assets
 Ensure that the business' funds are spent as intended
 Meet the established objectives and goals for operations or programs

⚠ An example of an internal control is requiring two signatures on a company check.

This helps prevent one dishonest employee from stealing the funds. Consider what
might happen in the business process of Finance if this control wasn’t present!

Flowcharts and walkthroughs

Now that we understand generally what business processes are and that internal
controls are part of those business processes, it’s time to get to work!

Yashua has asked you to understand the internal controls in Ashbourne’s accounts
receivable process, from the time a customer order is placed all the way to the final
collection of the accounts receivable.

This is achieved through what's called a “ walkthrough”.

You've completed the walkthrough with the client and Yashua now wants you to identify
and categorize some key internal controls Ashbourne has in place that help ensure
accurate accounts. This is an important element that will be included in the final audit
opinion.

Review the flowchart and identify the

controls
After the walkthrough, your client at Ashbourne sent you a flowchart that shows the
business process containing the accounts receivable (AR) function.

This process is commonly called the order-to-cash (OTC) cycle and covers the activities
from when a customer places an order all the way to Ashbourne collecting the cash.

Take a look at the flowchart below and use these tips to help you understand it:

 The rectangles(hình chữ nhật) in the flowchart describe a process, such as

preparing an invoice or entering the customer’s order in the ERP system.
  Processes are grouped by the three relevant internal functions within Ashbourne:
sales department, finance department, and operations.
 The red symbols represent documents created that are not directly part of the
ERP system.
 The green ovals represent entries or transactions recorded within the ERP system
itself.

There are a variety of internal controls to ensure these processes work accurately.

To finish this task, you’ll be given a short quiz to identify four internal controls from a
selected list. These are currently marked as A, B, C, and D in the flowchart.

Don’t worry; we’ll show you the flowchart within the quiz, so you don’t need to
memorize it! Get started when you’re ready.

A quick summary
Great work! To summarize, you’ve identified four internal controls that Ashbourne has in
place:

Process Control

The corporate controller reviews and approves sales terms for all customer orders over
$10,000.

IT General Control

Only designated and approved personnel have access to the ERP inventory module.
General Control, Segregation of Duties

Only customer service team members can enter and make adjustments to sales orders,
not sales personnel.

Management Review Control

The corporate controller reviews the AR report weekly and follows up on all customer
balances greater than $20,000 that are 30 days or more past due.

You’re nearly at the end of your audit; now it’s time to present your findings to the
client!

Audit wrap-up meeting ashbourne Industries, Inc.

Example of required Communications:

-Performance materiality established at 0.1% of pre-tax income

-Collectability of accounts receivable was a key audit matter. Our procedures included
substantive testing through confirmations from cútomers

-result Internal Control walk-through for OTC process: Identified 4 key controls

-We will issue an unqualified opinion for the 2022 financial statements and the
company’s controls over financial reporting