Research on factors affecting audit quality of financial statements of listed companies in the Vietnamese Stock Market

New contributions of the topic are as follows: - Collecting and developing theory with a deep viewinto factors affecting audit quality of financial statements of listed companies in the Vietnamese stock market. Through detailed analysis of domestic and international literature, a theoretical framework is established;3 groups of factors affecting audit quality audit quality of financial statements of listed companies are systemized and classified. - In analyzing reality in Vietnam, identifying 16 factors under 3 groups as having impact on audit quality of financial statements of listed companies in the Vietnamese stock market: group of external factors, group of factor related to auditors and group of factor related to auditing firms. The research also explains in details the content of these 16 factorsvia 62 evaluation criteria. 24 - Basing on identified factors, the author carries out survey and collecting opinions of 138 auditors eligible to audit financial reports of listed companies in the Vietnamese stock market. According to survey findings, 14 factors (with 60 criteria) affecting audit quality of financial statements of listed companies in the Vietnamese stock market are divided into 3 groups with different level of impact, specifically: 6 factors in the group of auditors with decreasing impact including: Experience and industry expertise; compliance, conduct, pressure, independence, competence; 3 factors in the group of external factors: Listed companies, legal environment and external control; 5 factors in the group of auditing firm with decreasing impact including: Quality control system, working condition (mostly about method and process), audit fee, reputation and size of firms. - From survey results about impact level of these factors and interviews of a number of specialists, the author presents 3 groups of solutions, including: enhancing the quality of auditors, auditing firms and legal environments. Some recommendations are given to authority, listedcompanies and investors. These solutions are useful for auditing firms and auditors, management agencies of audit quality of financial reports and especially for users of financial reports. They contribute to the sound development of the stock market and help investors to improve their understanding about risks as well as benefits of using audited financial reports. The topic of research will serve as important premise to identify evaluation attributes of audit quality of financial statements of listed companies in the Vietnamese stock market.

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1 INTRODUCTION 1. The necessity of the thesis Auditing plays an important role in maintaining and issuing financial reports with high quality. However, the bankruptcy of Enron Corporation, one of the leading energy corporations in the US in 2001, resulting in the downfall of Arthur Andersen, a world-class prestigious auditing firm in 2002, raised the concerns about audit quality. A series of scandals about audit quality of independent auditing firms was disclosed after that has involved incorrect opinions about financial reports like in the bankruptcy cases of Worldcom or Kmart corporations. In Vietnam, the incident of Bach Tuyet Cotton Corporation in 2008 became a focal point for Vietnamese stock market when disputes arose concerning audited business results in its 2005 and 2006 financial reports. Other cases relating to the reliability of information in audited financial statements also caused financial loss to investors. Financial reports of listed companies in the Vietnamese stock market receive much attention from different groups. Among which, the most popular and sensitive group is the group of investors. Financial statements can be distorted for the sake of companies managers and financial report preparers, not for the sake of investors. Auditors are responsible for ensuring the reliability of financial reports, which displays audit quality. However, it is not easy to evaluate or recognize audit quality. Evaluation criteria for audit quality can show audit quality but they do not demonstrate which factors resulting in such quality and, more importantly, basing on what basic can audit quality be improved. Therefore, the thesis’s topic, namely “Research on factors affecting audit quality of financial statements of listed companies in the Vietnamese Stock Market”, reflects the necessity of this issue and aims to clarify the issue of interest. 2 2. Literature review Review of Literature that have been conducted in oversea and Vietnam Applied research methodologies Research questions and findings Research questions and findings focus on the main point, which is evaluating perception of survey objects about the impact level of factors affecting audit quality; identifying important factors affecting audit quality by using a scale of evaluation as from 1 to 5 or 7, from “very low” to “very high”. Representative researches are from Schroeder et al (1986); Carcello et al (1992), Aldhizer et al (1995); Warming-Rasmussen & Jensen (1998); Chen et al (2001); Augus Duff (2004); Kym Boon (2007), Kym Boon et al (2008). 3. Research objectives and questions The overall objective is to identify factors affecting audit quality and evaluate the influence of each factor to audit quality of financial statements of listed companies in the Vietnamese stock market at present, which serves as the basis for proposing solutions. Research questions: In order to achieve the research objective, research questions are given accordingly and suitable in research framework. 4. Research objects and dimension The topic’s focus is to identify factors affecting audit quality of financial reports of listed companies in the Vietnamese stock market by independent auditing firms. The research objects are joint stock firms with securities (stocks and bonds) listing on the Ho Chi Minh City and Hanoi Stock Exchanges. 5. Research methodology - Analytical and statistical methods: Basing on secondary of domestic and international resources available and analysis of real situation in Vietnam to identify factors/criteria for factors affecting audit quality of financial statements. 3 - Survey method (survey, interview & observation) Basing on the system of factors determined in the theoretical framework, the author designs the Questionnaire for auditors working for independent auditing firms which are approved to audit financial reports of listed companies about the influence of factors affecting audit quality of financial reports of listed companies in the Vietnamese stock market (via evaluation criteria for factors). The author carries out direct interviews with a number of specialists as representatives of managers and leaders in auditing firms, institutional investors to discuss about survey results and relies on observation of secondary data to further clarify survey results, which serves as the basis for proposing solutions. - Data processing method: After getting survey results, the author processes the data on SPSS 18 software to analyze the reliability of factors and evaluation criteria for factors. The author also applies descriptive statistics for summing up and comparison with a view to quantifying the impact level of factors affecting audit quality of financial reports of listed companies in the Vietnamese stock market. Data resources are collected including primary and secondary data. 6. New contribution of the thesis In a theoretical view, the topic sums up theories with a deep view into systemizing factors (evaluation criteria of factors) affecting audit quality of financial reports of listed companies. In a practical view, the topic evaluates influence of factors to audit quality of financial reports of listed companies in the Vietnamese stock market from auditors’ viewpoint and proposes key solutions in line with Vietnam’s real situation. 4 7. Research framework and structure In addition to Introduction and Conclusion, the thesis is designed scientifically with 4 chapters as illustrated in the framework diagram below: Chapter 4: Recommendations and proposals to improve audit quality of financial reports of listed companies in the Vietnamese stock markets Chapter 1: Theoretical framework on factors affecting audit quality of financial statements of listed companies in the Vietnamese stock market Chapter 2: Analyzing reality and identifying factors affecting audit quality of financial statements of listed companies in the Vietnamese stock market Answering research question 1: Which factors and evaluation criteria for factors are identified as having important impact on audit quality of financial reports of listed companies in the Vietnamese stock market? Answering research question 2: Factors with the most important impact as well as the order of impact level of each factor to the audit quality of financial reports of listed companies in the Vietnamese stock market at present? Chapter 3: Research results about factors affecting audit quality of financial reports of listed companies in the Vietnamese stock markets. Answering research question 3: Key solutions to improve audit quality of financial reports of listed companies in the Vietnamese stock market? 5 CHAPTER 1: THEORETICAL FRAMEWORK FOR RESEARCH ON FACTORS AFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES ON THE VIETNAMESE STOCK MARKET 1.1. Stock market and listed companies on the stock market Characteristics of stock markets and listed companies influence characteristics of their financial reports. From that, we can see the necessity and important role of independent auditors with the reliability of information in financial reports, which contribute to stock market’s transparency and to investor’s protection. Contents presented below aim at clarifying theoretical framework about the stock market, listed companies and financial statements of listed companies from the auditors’ viewpoint. 1.1.1. Stock market 1.1.1.1. Establishment history of the stock market The history of stock market has a close connection with the commodity economy. In Europe, the stock market appeared in the beginning of sixteenth century. Up to now, the stock market has become a high form of financial market with strong development and high attractiveness for investors in developing and developed countries. 1.1.1.2. Definition of stock market Stock market is viewed as an organized market where securities of listed companies in the market are traded. It is a high form of financial market where investors always need transparent financial information to make their economic decisions and they can suffer heavy losses if financial information upon which they rely for decision making do not ensure reliability. 6 1.1.1.3. Functions of the stock market Functions of the stock markets display its role in the economy, specifically: Capital mobilization; encouragement of savings and investment; investment transferring tool; encouragement of competition; reflection of economic health; and integration tool into global economy. 1.1.1.4. Classification of stock market The stock market is classified differently basing on different criteria: stock circulation process, transaction method and transaction period. 1.1.1.5. Characteristic of the stock market Three basic characteristics of the stock market help to create its attractiveness and draw interest of individual and institutional investors. However, the transparency of information in the stock market, which requires the role of auditors to ensure information reliability, is a matter of crucial concern to protect investors. 1.1.1.6. Participants in the stock market The most popular participants that create the excitement for the stock market are joint stock companies and investors. Joint stock companies issue and list securities- the important source of commodity with overwhelming trading volume while investors carry out trading transaction in the stock market. 1.1.2. Listed companies in the stock market 1.1.2.1. Definition of listed companies A listed companies is a listed entity in the stock market, a joint stock firms eligible in terms of capital, business operation, financial capability, number of shareholders or owners to list shares in the stock market (on the stock exchange or securities trading center). 7 1.1.2.2. Characteristics of listed companies Five basic characteristics of listed companies are analyzed from the viewpoint of auditors and investors, which influence the characteristics on financial statements of listed companies with distinctive features of joint stock companies, owners/shareholders, business scope and fields under strict legal regulations. 1.1.3. Characteristics of financial reports of listed companies Firstly, financial reports require high level of reliability and sensitivity. Secondly, financial reports monitor and reflect many distinctive features. Thirdly, financial reports demonstrate a large volume of complicated transactions. Lastly, financial reports of listed companies comply strict requirements of the stock market, one of which is audit requirement. 1.2. Audit of financial reports of listed companies 1.2.1. Concept and classification of auditing 1.2.1.1. Definition of audit An independent audit of the financial report of a listed companies is where auditors from independent firms (eligible for auditing reports of listed companies) attest and give their opinions about the true and fair view, in all material aspect, of the financial statements of the listed companies. 1.2.1.2. Classification of audit Audit is classified according to functions, objects and obligation with both pros and cons for each type. Independent audit for financial reports 8 of listed companies in the stock market is compulsory and is carried out by independent auditors. 1.2.2. The role of independent audit of financial reports of listed companies Independent audit of financial reports of listed companies helps to enhance reliability of information in financial reports and transparency in the stock market. This aims at protecting investors and other beneficiaries of audit results, helping listed companies to improve their management capability and reputation as well as assisting authorized agencies in issuing appropriate legal documents. 1.2.3. Types of audit reports for financial reports of listed companies 1.2.3.1. Audit process for financial reports of listed companies in the stock market Audit process for financial reports of listed companies in the stock market ensure compliance to standard audit procedures. 1.2.3.2. Types of audit reports for financial reports of listed companies Audit reports include the following types of opinions: unqualified opinion & not unqualified opinion (qualified opinion, adverse opinion, and disclaimer of opinion). Of all these opinions, unqualified opinion is the best result that listed companies and investors in the stock market expect. 1.3. Factors affecting audit quality of financial reports of listed companies 1.3.1. Users of audit quality of financial statements of listed companies Researches about audit quality show that audit quality attracts attention of many users, especially institutional investors (securities companies, investment funds & others) and individual investors (from 9 different classes). This group of interest in audit quality displays the most distinctive features in the stock market. This group usually faces risks from unreliable financial reports. Therefore, these users always want to receive high quality financial statements from auditors, which serve as the basis for their investment decision. They are entitled to sue auditors if audited financial reports still contain material misstatements that cause financial losses to their investment decisions. 1.3.2. Viewpoints about audit quality of financial reports of listed companies Until now from literature review, two main viewpoints from researches about independent audit quality of financial reports, with practical viewpoint about satisfying users of audit service and scientific viewpoint about the ability to discover and report major misinterpretations in audited financial statements. Evaluating audit quality according to satisfaction level of users is not simple at all because users of audit results can not directly observe audit activities. Therefore, in evaluating audit quality, researchers normally assess the ability to discover and report material misstatements of auditors via identifying and measuring influencing factors. 1.3.3. Factors affecting audit quality of financial reports of listed companies According to the diagram, research results show differences in impact levels of factors. They are categorized into three groups of factors with the highest influence on audit quality of financial reports of listed companies. Details of factors/groups of factors are presented as follows: 10 Diagram: Groups of factor affecting audit quality of financial report of listed companies Filed work conduct Group of external factors Legal environment Auditees Other external factors Group of factors related to auditing firms Audit fee Firm’s size Audit approach Quality control system Other factors Group of factors related to auditors/auditor councils Industry expertise Experience Technical competence Independence Perception of standard compliance Due care Other factors 11 1.3.3.1. Groups of factors relating to auditors The first factor of Level of an industry expertise: With the distinctive role of audit in the stock market, the required level of industry expertise is often higher. Industry expertise also have more important impact on the audit quality of financial reports of listed companies because the complicated nature of these reports as well as the quantity and capability of objects of interest in audited financial reports will increase the risks of audit. The second factor of Auditor/Council experience: Due to distinctive characteristics of financial reports of listed companies in the stock market, audit risks for these reports are often higher than those of non-listed companies. Therefore, similar to industry expertise, experience factors also have high influence in audit quality. Consequently, complicated and risky audit cases should be given to auditors/auditor councils with a lot of industry experience. The third factor of Technical competence: It is considered the minimum requirement for auditors/auditor councils for an audit case of financial report for any customer in general and for listed companies in particular. The fourth factor of Independence: Researches all point out that auditors’ independence from their customers means the possibility of an audit case with better quality. Especially for the assurance of audit quality of financial reports of public firms (including listed companies in the stock market), independence becomes more and more important. Otherwise, even if major misinterpretations are discovered by auditors, they may not be reported because auditors may join hands with customers or serve the interest of certain groups of shareholders/individuals 12 The fifth factor of Compliance of ethical standards: High level of compliance of ethical standards from auditors/auditor councils means high audit quality because they are able to discover and report errors and unusual problem with little possibility of compromise during the audit process. The sixth factor of Due-care attitude: Due to widespread impact of audit quality of financial statements of listed companies, due-care attitude of auditors is considered an important factor, especially for audits of financial reports with many provisional items or when there are doubts about the continuous operational activities of listed companies. Due to higher level of risk for audit of financial reports of listed companies, due care is even more required when determining material misstatements. The seventh factor of field work conduct: Even though field work conduct is not considered the most important factor in researches, attention is required on this factor for audit of financial reports of listed companies due to high pressure and industry expertise requirements. Other factors related to auditors. 1.3.3.2. Group of factors related to auditing firms The first factor of Audit fee: The stock market requires higher audit quality TTCK, which goes in line with higher audit risks. Therefore, audit fee is an important factor affecting audit quality, especially for financial reports of listed companies. The second factor of Auditor’s size: Most researches show that size of auditing firms is an factor affecting audit quality. Listed companies in the stock market normally accept high audit fee for auditors in big auditing firms to increase their own reputation. The third factor of Audit Approach: For audit of financial reports for listed companies, due to its higher risk, an effective audit approach is 13 required to assist auditors in carrying out their audit practices in a more professional way and to better evaluate risks of listed companies. Therefore, it is considered as an important factor affecting audit quality of financial reports in general and financial reports of listed companies in particular. The fourth factor of Internal quality control system: Highly appreciated in most countries, this factor is considered compulsory according to audit standards and is treated as one of criteria to evaluate whether an auditing firm is eligible for auditing listed companies in the stock market. Other factors related to auditing firms 1.3.3.3. Group of external factors External factors have distinctive characteristics for each country, including: legal environment, listed companies, external control and other factors. Conclusion of chapter 1 Chapter 1 provides an overview of theoretical framework about the stock market, listed companies, characteristics of financial statements of listed companies affecting audit quality of financial reports. The outstanding results of chapter 1 is deeply systemizing factors affecting audit quality of financial report of listed companies in the stock market. According to this, there are three groups of factors affecting audit quality of financial reports, including group of factors relating to auditors, auditing firms and groups of external factors. Theoretical framework and overview about these groups of factors will serve as an important premise for empirical surveys to identify influencing factors and evaluate their level of impact on audit quality of financial statements of listed companies in the Vietnamese stock market. 14 CHAPTER 2: ANALYSIS OF REAL SITUATION IN RELATION WITH IDENTIFYING FACTORS EFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN VIETNAMESE STOCK MARKET 2.1. Overview of Vietnamese stock market and listed companies The real situation of the Vietnamese stock market and listed companies’ characteristics are clarified in relation with identifying factors affecting audit quality of financial statements of listed companies. 2.1.1. The development of Vietnamese stock market and listed companies It is divided into two main periods: from 2000 to 2005 and from 2006 to now. 2.1.2. Listing requirements for companies in the Vietnamese stock market As stipulated in Decree No.58//2012/Nð-CP dated Sept 15, 2012 on guiding the implementation of the Law on Securities. 2.1.3. Characteristics of listed companies in the Vietnamese stock market affecting audit From the audit viewpoint, besides general characteristics, listed companies in the Vietnamese stock market also have distinctive features of a fledging stock market, which have an impact on the roles and factors affecting audit quality of financial reports in the following points: Firstly, listed companies are joint stock companies eligible for listing according to regulations; Secondly, listed companies have diversified business scopes with many complicated transactions arising; Thirdly, listed companies normally have big companies size and dispersed organization structure; Fourthly, a lot of shortcomings still exit in the internal control systems of listed companies; Fifthly, listed companies must comply with requirements about disclosing financial report information. 15 2.2. Audit of financial reports of listed companies in Vietnamese stock market 2.2.1. Characteristics of independent auditors approved to audit listed companies The real situation of the audit is analyzed pertaining to identifying factors affecting audit quality of financial statements of listed companies in the Vietnamese stock market with the focus in the following aspects: The establishment and development of independent audit in Vietnam; legal basis for operation of independent audit of financial reports of listed companies and characteristics of auditing firms for financial reports of listed companies in the Vietnamese stock market. 2.2.2. The role of auditing financial reports of listed companies Analysis about discrepancies in data of annual financial reports before and after audit, in data of semi annual financial reports and analysis about types of auditors’ opinions concerning financial reports of listed companies in Vietnamese stock market show the direct role of audit, which helps to make information in financial reports of listed companies more true and transparent and help investors to trust as well as take caution with data in financial reports. 2.2.3. The real situation of evaluating audit quality of financial reports of listed companies In Vietnam, evaluation of audit quality of financial reports of listed companies is carried out by auditors themselves (through their internal quality control systems) and by authorized agencies ( mostly the Vietnam Association of Certified Public Accountants - VACPA) via external quality control activities. Investors are unable to evaluate by themselves; they can only trust auditors’ opinion until there are consequences arising. 2.3. Identifying factors affecting audit quality of financial reports of listed companies in the Vietnamese stock market Through analyzing the real situation in Vietnam, 16 factors (under 3 groups) and 62 criteria have been identified as having important impact on 16 audit quality of financial statements of listed companies in the Vietnamese stock market. 2.3.1. Group of external factors 2.3.1.1. Legal environment for audit activities of financial reports of listed companies (Legal environment): three evaluation criteria for the legal environment includes: (1) sufficiency; (2) conformity; (3) sanctions. 2.3.1.2. Customer as listed companies: with 6 evaluation criteria for customers as listed companies. 2.3.1.3. Others external factors: including three evaluation criteria: (i) Macroeconomic environment; (ii) Cultural environment, habits of audit service users; (iii) The role of external quality control of financial reports of listed companies. 2.3.2. Group of factors relating to auditors Eight factors and thirty two evaluation criteria related to auditors are identified as having impact on audit quality of financial reports of listed companies in the Vietnamese stock market as follows: 2.3.2.1. Ensuring independence: with 4 evaluation criteria. 2.3.2.2. Technical competence of auditors/auditor council: with 3 evaluation criteria. 2.3.2.3. Industry expertise of auditors/auditor council: with 3 evaluation criteria. 2.3.2.4. Audit experience of auditors/auditor council: with 2 evaluation criteria 2.3.2.5 Work attitude (due care and skepticism) of auditors/auditor council: with 6 evaluation criteria. 2.3.2.6. Field work conduct of auditors/auditor council: with 6 evaluation criteria. 17 2.3.2.7. Compliance to ethical standards: with 3 evaluation criteria. 2.3.2.8. Pressure of busy seasons on auditors/auditor council: with 4 evaluation criteria. 2.3.3. Group of factors related to auditing firms Five factors with eighteen evaluation criteria are identified as having impact on audit quality of financial reports of listed companies in the Vietnamese stock market as follows: 2.3.3.1. Size of auditing firms: with 4 evaluation criteria. 2.3.3.2 Reputation of auditing firms: with 3 evaluation criteria. 2.3.3.3 Working conditions of the firms for auditors/auditor council: with 5 evaluation criteria. 2.3.3.4. Audit fee/ completion time of audit report: with 2 evaluation criteria. 2.3.3.5. Internal quality control system of auditing firms: with 5 evaluation criteria Conclusion of chapter 2 Basing on the above-discussed domestic and international literature, 16 factors criteria under 3 groups are identified as having impact on audit quality of financial reports of listed companies in the Vietnamese stock market: groups of external factors; groups of factors relating to auditors and group of factor related to auditing firm. The research also clarifies the detailed contents of 16 factors via 62 evaluation criteria. These 62 criteria are identified from international researches coupled with analysis of current situation and they are considered to be in line with the real situation in Vietnam. 18 CHAPTER 3: RESEARCH RESULTS ABOUT FACTORS AFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN THE VIETNAMESE STOCK MARKET 3.1. Data collection and methodologies 3.1.1. Design of questionnaires 3.1.2. Selection of survey objects 3.1.3. Research methods and collection of questionnaires 3.1.4. Description of questionnaires’ object 3.1.5. Data sources 3.1.6. Description of steps for producing research data Step 1: Digitalizing and input data in SPSS. Step 2: Re-digitalizing measurement index into 3 levels: 1. From Very low -> Low; 3. Normal; 5. High-> Very high. Step 3: Checking measurement index for suitable results of criteria Step 4: Checking measurement index for each group of factors; handling data in SPSS with the end result of 14 factors and 60 evaluation criteria affecting audit quality of financial reports of listed companies in the Vietnamese stock market Step 5: Statistical description (results are shown in 3.2) 3.2. Analyzing results of impact level of factors to audit quality of financial reports of listed companies Table about impact level of 3 groups of factors affecting audit quality Code Symbol Group of factors affecting audit quality No of obser- vation Mean Standard deviation 1. Nhóm B NhomKTV Group of auditors 138 4.2375 0.63702 2.Nhóm A Nhombenngoai Group of external factors 138 3.9710 0.70978 3.Nhóm C NhomCTKT Group of auditing firms 138 3.9504 0.70491 (Source: Research results on level of impact of factors affecting audit quality of financial reports of listed companies in the Vietnamese stock market) 19 Below is detailed analysis of impact level of factors taken from research results of 3 groups of factors (external, auditors, auditing firms). The following tables are arranged with average value in decreasing order of impact level. 3.2.1. Group of external factors There are 3 factors in the group of external factors affecting audit quality with 12 evaluation criteria. Table showing impact level of group of external factors to audit quality of financial reports of listed companies in the Vietnamese stock market No Code Symbol External factor No of obser- vation Mean Standard deviation 1 BC2 DNNY Listed companies 138 4.1401 0.81730 2 BC1 MoitruongPL Legal environment for audit of financial report of listed companies 138 4.0628 0.96201 3 BC3 Ngoaikhac Other external factors 138 3.7101 1.00350 Group A Nhombenngoai Group of external factors 138 3.9710 0.70978 (Source: Research results on level of impact of factors affecting audit quality of financial reports of listed companies 3.2.2. Groups of factors related to auditors There are 6 factors in this group with 30 evaluation criteria. Table showing impact level of group of auditor factors to audit quality of financial reports of listed companies in the Vietnamese stock market No Code Symbol Factors in the group of auditor No of obser- vation Mean Standard deviation 1 BC6 Chuyensau Expertise of auditors/auditor council 138 4.4551 0.74550 2 BC10 Ythuc Compliance and attitude of auditors/auditor council 138 4.4251 0.79001 3 BC9 Chuyennghiep Conduct of auditors/auditor council 138 4.3768 0.86187 4 BC11 Apluc Pressure of busy seasons for auditors/auditor council 138 4.2754 1.05863 5 BC4 Doclap Independence of auditors/auditor council 138 4.2065 0.88319 6 BC5 Trinhdo Competence of auditors/auditor council 138 3.6860 1.08948 Group B NhomKTV Group of auditors 138 4.2375 0.63702 (Source:Research results on level of impact of factors affecting audit quality of financial reports of listed companies) 20 3.2.3. Group of factors related to auditing firms There are 5 factors in this group with 18 evaluation criteria. Table showing the influence of group of factors relating to auditing firm on audit quality of financial reports of listed companies No Code Symbol Group of factors related to auditing firms No of obser- vation Mean Standard deviation 1 BC16 KiemsoatCL Quality control system of auditing firms 138 4.2870 0,89343 2 BC14 DKLV Working conditions of auditors/auditor council 138 4.0145 0,85209 3 BC15 Phi Audit fee and completion time for financial reports 138 3.9420 1,18240 4 BC13 Danhtieng Firm’s reputation 138 3.8309 1,10389 5 BC12 Quimo Firm’s size 138 3.6775 1,02131 Group C NhomCTKT Group of factors related to auditing firms 138 3,9504 0.70491 (Source: Research results on level of impact of factors affecting audit quality of financial reports of listed companies Conclusion of chapter 3 After survey and collection/handling of survey results, it is shown from survey results which factor and group of factors have the most impact as well as order of impact for each factor (including 3 external factors, 6 factors relating to auditors and 5 factors related to auditing firms) and 60 evaluation criteria to the audit quality of financial reports of listed companies in the Vietnamese stock market. 21 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN THE VIETNAMESE STOCK MARKET 4.1 The necessity for improving audit quality of financial reports of listed companies in the Vietnamese stock market From the viewpoint of auditors, survey results show that 65.9% of auditors in the survey thinks audit quality of financial reports of listed companies in the Vietnamese stock market is only average; while 26.1% thinks the quality is at low or very low level. Therefore, it is necessary to have solutions to improve audit quality of financial statements of listed companies in the Vietnamese stock market at present. 4.2. Solutions for improving audit quality of financial reports of listed companies in the Vietnamese stock market The diagram below shows 3 groups of solution basing on research results, observation and interview of specialist, including: 4.2.1. Group of solution to improve quality of auditors Improving industry expertise, compliance and attitude, field work conduct of auditors; groups of solutions to reduce pressure and ensure independence of auditors. 4.2.2. Group of solutions to improve quality of auditing firms Firstly, improving quality control system of auditing firms; Secondly, improving working condition with the focus on designing professional audit approach and tools. 4.2.3. Group of solutions to improve legal environment Firstly, continue to improve new audit standards; Secondly, continue to improve accounting standards and practices. 4.3. Some recommendations for improving the feasibility of solutions 22 4.3.1. Improving management role of competent authority: State Securities Commission (SSC), VACPA, the Ministry of Finance Diagram: Recommendations to improve audit quality of financial reports of listed companies in the Vietnamese stock market Auditing firms Auditors/ Auditor council M i n i s t r y o f F i n a n c e S S C V A C P A 1. Experience, expertise 2. Compliance 3. Conduct 4. Pressure 5. Independence - Compliance - Recruitment/training - Encouragement/Sanction 2.Working conditions (audit approach, tool) Listed Companies Legal environment Sufficiency, Compliance, Sanction 1. Quality control system 23 4.3.2. For listed companies: Recommendations to reduce negative impacts for listed companies to audit quality. 4.3.3. Notes of caution to investors while using audit reports of financial reports: Some notes of caution to investors are proposed regarding types of auditor comments about financial reports of listed companies. Conclusion for Chapter 4 Chapter discussed about the real situation of factors affecting audit quality of listed companies in the Vietnamese stock market from the viewpoint of auditors; thus presenting 3 groups of solution. To improve feasibility of these solutions, the author gives some recommendations to authority and listed companies. In addition, there are notes of caution to investors about risks when using audited financial statements. CONCLUSION New contributions of the topic are as follows: - Collecting and developing theory with a deep view into factors affecting audit quality of financial statements of listed companies in the Vietnamese stock market. Through detailed analysis of domestic and international literature, a theoretical framework is established; 3 groups of factors affecting audit quality audit quality of financial statements of listed companies are systemized and classified. - In analyzing reality in Vietnam, identifying 16 factors under 3 groups as having impact on audit quality of financial statements of listed companies in the Vietnamese stock market: group of external factors, group of factor related to auditors and group of factor related to auditing firms. The research also explains in details the content of these 16 factors via 62 evaluation criteria. 24 - Basing on identified factors, the author carries out survey and collecting opinions of 138 auditors eligible to audit financial reports of listed companies in the Vietnamese stock market. According to survey findings, 14 factors (with 60 criteria) affecting audit quality of financial statements of listed companies in the Vietnamese stock market are divided into 3 groups with different level of impact, specifically: 6 factors in the group of auditors with decreasing impact including: Experience and industry expertise; compliance, conduct, pressure, independence, competence; 3 factors in the group of external factors: Listed companies, legal environment and external control; 5 factors in the group of auditing firm with decreasing impact including: Quality control system, working condition (mostly about method and process), audit fee, reputation and size of firms. - From survey results about impact level of these factors and interviews of a number of specialists, the author presents 3 groups of solutions, including: enhancing the quality of auditors, auditing firms and legal environments. Some recommendations are given to authority, listed companies and investors. These solutions are useful for auditing firms and auditors, management agencies of audit quality of financial reports and especially for users of financial reports. They contribute to the sound development of the stock market and help investors to improve their understanding about risks as well as benefits of using audited financial reports. The topic of research will serve as important premise to identify evaluation attributes of audit quality of financial statements of listed companies in the Vietnamese stock market.

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