What should the companies keep in mind for first-year audits?

In Vietnamese auditing standards, a first-year audit is defined as an audit in which:

1. The financial statements for the previous period were not audited; or
2. The financial statements for the previous period were audited by a predecessor auditor.

Although the auditor only has to express an opinion on the current period's financial statements, they still need to obtain sufficient and appropriate audit evidence to ensure that the opening balances have been presented fairly and reasonably. Because:

• Some items on the current period’s financial statements depend on the figures from the previous period. For example, the cost of goods sold for the current year will depend on the value of the inventory determined at the end of the previous year.
• The balances on the balance sheet as at the current period ended may be cumulative data from transactions that have occurred in previous years. For example, fixed assets were purchased in previous years.

Accordingly, if a company uses auditing service for the first time or changes the audit firm, it is important to note the following points to ensure that the audit process runs smoothly and efficiently:

• For case (ii) above, send a letter to the predecessor auditor to notify of the appointment of the successor auditor.
• According to the guidance of Vietnamese Auditing Standards 510 “Audit of Opening Balances”, the auditor has the right to request to review the predecessor auditor’s audit files to collect evidence related to opening balances. However, this may not be effective or feasible because the review fee may exceed the benefits of the review, or the predecessor auditor’s audit files may indicate that the audit evidence collected related to opening balances is not sufficient and appropriate, or for other reasons.
• The auditor has the right to request the company to provide documents and records related to transactions that have occurred and balances from previous years to perform appropriate audit procedures for opening balances. For example:
  • The audited financial statements with attached auditor’s report, list of adjusting entries, management letter (if any);
  • Confirmation letters from banks, suppliers, customers, creditors;
  • Supporting documents for purchases/construction of fixed assets;
  • Supporting documents for sales/purchases of goods
  • Minutes of stock taking, cash counting and fixed assets physical checking;
  • Loan contracts;
  • Leasing contracts;
  • …