1.

Minh Anh is an enterprise that wants to borrow capital at VPP

Bank. One of the conditions for VPP to approve the VND 50 billion
loan is that Minh Anh's financial statements must be audited by an
independent auditing firm. Minh Anh signed an audit contract with
VAA Auditing Company and requested VAA to send the audit report
to VPP Bank. The VAA has assigned auditor An to take charge of this
audit. After conducting the audit, the VAA issued the audit report
with unqualified opinion. Based on loan documents and financial
statements audited by VAA, VPP Bank approved and disbursed a
loan of VND 50 billion to Minh Anh. However, 6 months later, Minh
Anh encountered financial difficulties and was unable to pay the
principal and interest of the loan to VPP Bank. At the same time, VPP
Bank discovered that most of the fixed assets used as collateral for
the loan had been overstated by Minh Anh. These errors were not
detected by auditor An and presented in the audit report. As a
result, VPP Bank sued VAA and auditor An.
Required: In the above situation, are auditors An and VAA auditing
firm responsible for legal liability? Explain why. What should An and
VAA do to defend this lawsuit?
Answer:
In this case, Minh Anh signed an audit contract with VAA Auditing
Company and requested VAA to send the audit report to VPP Bank to
borrow capital at VPP; thus auditor An knew that VPP Bank was
foreseen user who would rely on an audited financial statement by
VAA. However, when auditing, auditor An did not detect that most
fixed assets of Minh Anh had been overstated (Fixed assets are an
important item when borrowing capital because it is used as
collateral), and therefore the VPP issued wrong audit opinions. The
issuance of the wrong audit opinion has affected VPP Bank's decision
to lend capital and has led to the fact that VPP may not be able to
recover both the principal and interest of the loan from Minh Anh,
and this is the reason auditor An and VAA auditing firm is liable to
third party under common law. To defend this lawsuit, An and VAA
can use nonnegligent performance: VAA Auditing Company claims
that the audit was performed in accordance with auditing standards.
Auditing standards make it clear that an audit is subject to
limitations cannot be relied on for complete assurance that all
misstatements will be found.

2. UYY Auditing Company provides financial statement audit

services to its client - BTC Company for the financial year ended
31.12.2022. Although UYY has carried out the audit in accordance
with the audit contract signed between the two parties and has
issued the audit report in March 2023, however, by September
2023, BTC still owes 50% of UYY's audit fees. The BTC proposes to
continue to hire UYY to conduct audits for the upcoming years,
provided that UYY continues to owe 50% of the above audit fees
until 31.12.2023, and requests UYY to reduce audit fees by 30% for
the upcoming years.
Required: In this situation, if UYY accepts the BTC's offer, what
ethical risks (or threats) will UYY face? Explain why?
Answer: In this case, if UYY Auditing Company accepts the BTC’s
offer, UYY will face with self-interest threat.
Explanation: BTC still owes 50% of UYY's audit fees and requests
UYY to reduce audit fees by 30% for the upcoming years. This leads
to the possibility of being threatened with non-payment of debt if
the audit fee is not reduced by 30% and this can create undue
influence. Therefore, UYY can prioritize its own financial interests
(the payment of client) over its professional obligations and it lead
to self-interest threat.

3. For each of the following independent situations, based on the

provisions of Vietnam's current standards of auditing ethics, please
identify and explain the risks (threats) that lead to violations of audit
ethical principles?
a. VTC is a listed company and a regular customer of VAA Auditing
Company. It is known that audit fees collected from audit contracts
for VTC account for 10% of VAA's total revenue.
Answer: In this situation, the threat that lead to violations of the
audit ethical principle is self- interest.
Explanation: Audit fees collected from VTC accounted for 10% of
the total revenue of VAA, it is a large proportion when auditing for a
listed company and if VAA loses this customer, it will have a
negative impact on VAA's financial situation. Therefore, customers
can rely on this to threaten VAA to comply with their requests and
lead to undue influence on VAA. It makes VAA be dependance on
VTC and concerned about losing this client and consequently
creating self-interest threat.

b. ABC Auditing Company provides financial statement audit

services for Minh Long Company after finishing consulting services
to develop accounting information systems for this client. Minh Long
is a company listed on the stock exchange.
Answer: In this situation, the threat that lead to violations of the
audit ethical principle is self-review.
Explanation: ABC Auditing Company provides consulting services
for Minh Long Company before conducting auditing service, this
leads to ABC can criticize its own work end decisions and
consequently creating self-review.

c. CPA Thang Long provides financial statement audit services for

M2M Company. During the audited fiscal year, M2M was sued by
customers for trade frauds related to the origin of goods that M2M
imported for sale. CPA Thang Long pledged to provide legal support
to M2M in court on import records of shipments related to the
lawsuit. If M2M wins the case, CPA Thang Long will continue to audit
M2M in the coming years, and will receive a commission of 20% of
the audit fee for the next fiscal year.
Answer: In this situation, the threat that lead to violations of the
audit ethical principle is and advocacy and self-interest.
Explanation:
- CPA Thang Long pledged to provide legal support to M2M in court;
it can create advocacy threat because CPA Thang Long promotes
M2M’s position. By this way, CPA Thang Long can compromise its
independence and objectivity.
- If M2M wins the case, CPA Thang Long will continue to audit M2M in
the coming years; it can create self-interest threat because M2M can
give opinions that are beneficial to the client in order to continue to
audit M2M in the coming years and receive commission of 20% audit
fee for the next fiscal year.

d. The audit team of ABC auditing firm receives gifts of 40%

discount coupon to buy electric vehicles of Vin E and product
warranty benefits during the time ABC provides audit services to Vin
E. Vin E operates in the field of manufacturing and selling electric
vehicles in Vietnam.
Answer: In this situation, the threat that lead to violations of the
audit ethical principle is familiarity.
Explanaion: The audit team of ABC Auditing Firm receives gifts of
40% discount coupons to buy electric vehicles from Vin E and
product warranty benefits. This creates a familiarity threat, as due
to the gifts received the audit team may develop a close relationship
with Vin E, and when conducted audit, the auditor may be
influenced by the relationship with Vin E, this leads to compromise
in its dependence and objectivity.
e. Auditor An is responsible for the audits. Leaders of VAI auditing
firms often require An to agree to situations where clients handle
inappropriate accounting operations. The leader of VAI Auditing
Company also told An that if An had serious disagreements with the
client's leadership, VAI would lose the audit contracts.
Answer: In this situation, the threat that lead to violations of the
audit ethical principle is intimidation.
Explanation: Leaders of VAI auditing firms often require An agree
inappropriate accounting operations. They also threaten that if
Auditor An had disagreement with them, the firm will lose the audit
contracts. This can create intimidation threat because auditor An
may feel obligated to comply with the request of VAI to maintain the
audit contract.