FINAL REPORT

Auditing and Assurance Services

Vinamilk

Class: AC2015E
Program: Analyzing, accounting and auditing

Group members:
Nguyễn Hà Trang
Bùi Thị Thùy Linh
Đặng Khánh Linh
Hoàng Thị Phương Linh
Nguyễn Hùng Sơn
Trịnh Thị Sơn Hà
 Table of content:

1. Understand the client

2. Analytical procedures

3. Risk assessment
I. UNDERSTAND THE CLIENT:
1. Brief information about Vinamilk:
- Company name: Vietnam dairy product joint stock company.
- Vietnamese name : Công ty Cổ phần Sữa Việt Nam
- Abbreviated name : Vinamilk
- Stock code : VNM
- Charter capital : VND 14,514,534,290 millions VND
- Head office : 10 Tan Trao, Tan Phu Ward, District 7, Ho Chi
Minh City
- Business registration certificate and tax code: 0300588569
Business Operation and ProcessManagement and Governance
2. Industry and External Environment:
- According to BMI reports, both manufactures and processes in
milk manufacturing field, big corporations such as Vinamilk,
TH and Hanoi milk quickly developed its milk farms so milk's
yield is forecasted to grow at least 10% in 2017 and 2018.
- Vinamilk is the largest dairy company in Vietnam. In 2010, it is
the first company in Vietnam to be included in the Forbes Asia's
200 Best Under A Billion list that highlights 200 top-
performing small- and mid-sized companies with annual
revenue under US$1 billion.
- Dairy enterprises in Vietnam still have to import technology,
raw materials and equipment from abroad due to limited
domestic technology. Hence, significant impact on the cost of
products, turnover of enterprises.
- Since the accession to the WTO, Vietnam's dairy enterprises
have been under increasing pressure due to the reduction of
tariffs on imported milk under the tariff reduction policy of
Vietnam when implementing the commitments under the
Agreement. Common Effective Preferential Tariffs in the
ASEAN Free Trade Area (CEPT / AFTA commitments) and
commitments with the World Trade Organization (WTO). The
"foreign" psychology of the Vietnamese also negatively affect
the consumption of dairy products in Vietnam. Currently,
domestic dairy products account for only 30% of domestic
market share.
- In 2017,Vinamilk exceeded of its consolidated revenue target
by 0.3% (of which domestic sales increased 13.6% and exports
decreased 23%) and reached 105.6% of the consolidated post-
tax profit target, the market share of the whole dairy industry
 increased by 2% compared to the target of 1% increase and is
continuing to maintain the leading position in the national dairy
market.
3. Managerment and govermence:
a. Business Philosophy:
Continuous development of production, trade and service in the
areas of business activities in order to: maximize profit and
enhance the Company’s value in harmony with the interests of the
Shareholders; improve the living conditions, income and working
environment of employees; also to ensure the interests of other
stakeholders towards sustainable and responsible development.
b. Vision:
To become a world grade brand in food and beverage industry,
where people put all their trust in nutrient and health products.
c. Mission:
To deliver the valuable nutrition to community with respect, love
and responsibility.
d. Core values:
- Integrity: Integrity and transparency in actions and transactions.
- Respect: To have self-respect, to respect colleagues. To respect the
Company and partners. To cooperate with respect.
- Fairness: To be fair with employees, customers, suppliers and
other parties.
- Ethics: To respect the established ethical standards and act
accordingly.
- Compliance: To comply with legal regulations, the Company’s
Code of Conduct, and the Company’s procedures and policies.
e. Management structure:
- In order to operate the management, the cVinamilk builds the
Company’s structure in a concentrated and unified manner from
the top down. Duties and powers are assigned to each department,
each level, clearly and thoroughly from the BOD to the Executive
Committees, managers and staff.
 Board of directors:
- Mrs. Mai Kieu Lien – Chief Executive Officer
- Mr. Mai Hoai Anh – Executive Director – Sales
- Mr. Trinh Quoc Dung – Executive Director – Dairy Development
- Mrs. Nguyen Thi Thanh Hoa – Executive Director – Supply Chain
- Mrs. Bui Thi Huong – Executive Director – Human Resources
Administration & PR
- Mr. Nguyen Quoc Khanh – Executive Director – Research &
Development
- Mr. Le Thanh Liem - Executive Director – Finance Cum Chief
Accountant
- Mr. Phan Minh Tien - Executive Director – Marketing
- Mr. Tran Minh Van - Executive Director – Production
*Note: In the new model, the Audit Subcommittee is established and
assumed the role instead of the former Risk Management
Subcommittee and the Board of Supervisors, including
 management of internal auditing and internal control systems and
risk management. This risk management structure changes in
accordance with the change of the Company’s management model
from having the Board of Supervisors to the absence of Board of
Supervisors, the main operational direction and control through
the Board of Directors
4. Business Operation and Processes:
Group Structure:

a. Main customer
- Vinamilk product lines are developed for children and adult. This is
because Vinamilk has the biggest demand for milk and consumer goods
and dairy products. Vinamilk divides its target customers into two groups
 Individual customer groups: This is a group of customers with
diverse product needs (good quality, nutritional value of
products, reasonable price, packaging design, ...) and accounted
for a high proportion.
  Organized customer groups: distributors, wholesalers, retailers,
stores, supermarkets, etc. This is a group that requires discount,
sales bonus, order on schedule, ... related to product
distribution.
 In addition to the two main target groups, Vinamilk's other
products also meet all age groups: yogurt, liquid milk,
condensed milk, Vfresh, ...
Vinamilk’s products are for all group of people, but they are more
focusing on middle class. Meanwhile, overall qualities are
improving, people’s demand is higher and higher. They are now
not as suitable as they were.
b. Main revenue
2017 ( VND)

From Product’s sale 49.526.103.800.509

From good’s sale 1.446.258.338.101

From the provision of 62.526.876.757

services

Rental income: From renting 17.187.652.809

properties

- Serving this demand, on the one hand, the company has actively
invested in industrial scale farms, on the other hand, constantly
improving the purchasing and development of fresh milk from the
households. Vinamilk strengthens localization of milk material.
- Vinamilk invest in building dairy farms => self-control 17% raw milk
input. Because of unstable raw milk input followed by cooperation
with milk farm. This leads to several consequences such as unstable
quality and quantity.
Vinamilk has excess supply of raw materials with 13 factories throughout the
country

5. Client Objective and Strategy:

a. Objective:
- Products also meet all age groups: yogurt, liquid milk, condensed
milk, Vfresh, ...
- 2017 marked 41 years of Vinamilk’s establishment and
development with the bold mark in the production, business and
branding reputation. So far, Vinamilk is proud to be Dairy
Company No.1 in Vietnam, ranking 49th in the top 50 most
profitable dairy companies in the world.
b. Applicable tax rates:
- The companies in the Group are required to pay income tax at rates
ranging from 10% to 40%, depending on principle activities of its
factories, on taxable profits. The Company and its subsidiaries
incurred the income tax charges.
* Reason: - Based on the Circular No. 18/2002 / TT-BTC, the
company has two manufacturing plants while the industry is
subject to state incentives.
- In Clause 1, Article 26, Chapter IV of the
Government's Decree No. 64/2002 / ND-CP of June 19, 2002 on
the transformation of State enterprises into joint-stock companies,
prescribing policies for equitized enterprises, VNM was
established in 2003 on the basis of equitization of enterprises =>
"To enjoy tax incentives under the Law on Domestic Investment
Promotion as for newly established enterprises without having to
carry out the procedures for granting Certificate of investment
incentives. "
c. Value proposition

- The business offers customers appropriately healthy products with

very affordable price. Its nutritional values – including calcium
 value (110mg/100ml) and fat value (3.5g/100ml) – are just average
in the market. Vinamilk’s target is middle-income population.
Vinamilk’s positioning strategy is ‘the same for less’.
- Meanwhile, the price (29,500VND/1 liter box since 1/2017) is
cheaper than that of major competitors Dutch Lady, TH True Milk
and obviously high-end foreign brands.
d. Development strategy
- The long-term development strategy of Vinamilk is to achieve the
target revenue of USD 3 billion and become one of the 50 biggest
dairy companies in the world in the period of 2012-2017.
 Vinamilk achieve its mission:
- Developing strategic human resource management
- Maintaining and managing activities towards sustainable
development
- Planning and implementing Knowledge, Innovation, and Change
management.
 Vinamilk’s strategic priorities are:
- Assets investment plan:
- To achieve the target revenue of USD 3 billion in the period
of 2012-2017.
- To maintain dividend payments to shareholders with an
annual dividend rate of at least 30% on par value.
- Customers:
- To be an enterprise with high customer satisfaction on
product quality, affordable prices, and the leading
distribution system in Vietnam
- Corporate governance:
- To be an enterprise with accredited professional
management and structure
- To be an enterprise where the working environment enables
employees to make out their best capabilities and
contribution to the common goals, thus being one of the best
working places for employees.
*Note: Prior to 11 November 2017 the Company held 15% shares in Asia
Saigon Food Ingredients Joint Stock Company but had significant influence
over this entity because a member of the Company’s Board of Directors is a
Board of Management member of this entity; as at 11 November 2017, the
Company had no longer significant influence over Asia Saigon Food
Ingredients Joint Stock Company’s operating and financial policies, the
Company reclassified the investment from investment in associate to other
investment accordingly.
6. Measurement and Performance
a. Development strategy:
The BOD has strictly followed the 5-year strategic plan of 2017-
2021. The BOD has reviewed and approved some decisions, such
as the expansion of the distribution network, the selective
marketing activities, the product development to meet market
needs (e.g. organic products), the development of the farm system,
the enhancement of factory capacity, the execution of M&A
transactions and the rise of equity in affiliates and subsidiaries in
order to increase the sustainability of the value chain. Total
investment reached over 5,800 billion (40% of the 5-year plan).
b. Production and sales:
- Revenue: VND 51,135 billion, reaching 100.3% of the plan.
- After-tax profit: VND 10,278 billion, reaching 105.6% of the plan.
- In terms of market share: Major product lines have grown
dramatically compared to competitors. Vinamilk's total dairy
market share increased by 2% at the end of 2017 compared to that
of 2016, outperforming the target by 1%.
c. Dividends:
- Cash dividend paid to shareholders in 2017 was VND4,000/share
(excluding the dividend of VND1,500/ share for closing date on
29th December 2017 that will be paid on 30th March 2018).
- Major share: At least 50% of profit after tax
d. Capital Investment:
Vietnam's State Capital Investment Corporation (SCIC) holds 36%
of the shares as of late 2017. 7.58% are owned by other
Vietnamese investors, of which 0.28% are owned by CEO Mai
Kieu Lien. Foreign investors hold over 53% of the shares.
- F&N Dairy Investments Pte Ltd: 16.50%
- Jardine Cycle & Carriage, via Platinum Victory Pte. Ltd.
(PVPL): 10.03%
- F&N BEV Manufacturing PTE.Ltd: 2.70%
- Matthews Pacific Tiger Fund 2.02%
- Arisaig Asia Consumer Fund, Ltd 1.65%
- Deutsche Bank AG, London Branch: 1.09%
- other foreign investors: 30%
- F&N have been holding shares of Vinamilk for a long time and
have two representatives in the Board of Directors.
 e. Funds:
- Appropriation to equity funds is made in accordance with the
Company’s Charter as follows:
 Bonus and welfare fund 10% of profit after tax
 Investment and development fund 10% of profit after tax
- Utilisation of the above reserve funds requires approval of the
shareholders, the Board of Directors or the Chief Executive
Officer, depending on the nature and magnitude of the transactions
involved as stated in the Company’s Charter. When the fund is
utilised for business expansion, the amount utilised is transferred to
share capital.
7. Conclusion:
Based on collectable information about Vinamilk, we found that
Vinamilk is a leading Vietnamese company in manufacturing
and trading dairy products.With a market share of over 40%,
vinamilk's revenue and profit are growing steadily in recent
years. Vinamilk is also expanding its overseas market. Vinamilk
is doing well with its internal management and control system.
However, there are still a lot of potential of risks, which we will
discuss later
II. Analytical procedures
A. Objectives:
1. Preliminary analytical review – risk assessment
Preliminary analytical reviews are performed to obtain an
understanding of the business and its environment (eg financial
performance relative to prior years and relevant industry and comparison
groups), to help assess the risk of material misstatement in order to
determine the nature, timing and extent of audit procedures, ie to help the
auditor develop the audit strategy and program.
2. Substantive analytical procedures
Analytical procedures are used as substantive procedures when the
auditor considers that the use of analytical procedures can be more
effective or efficient than tests of details in reducing the risk of material
misstatements at the assertion level to an acceptably low level.
3. Final analytical review:
Analytical procedures are performed as an overall review of the
financial statements at the end of the audit to assess whether they are
consistent with the auditor’s understanding of the entity. Final analytical
procedures are not conducted to obtain additional substantive assurance.
If irregularities are found, risk assessment should be performed again to
consider any additional audit procedures are necessary.
 B. Findings:
1.Income statement analysis

Percentage change income statement analysis which is computed by taking the

change in amount of money at the end of year and beginning of this year divide
to the money at the beginning of year is the horizontal analysis. It presents the
change of all items in income statement year to year from 31/12/2015 to
31/12/2017 to see the Vinamilk’s performance.

 Net revenue
2015 2016 2017
Net revenue (billion VND) 40,081 46,795 51,041
% change in net sales (%) 16.8% 9.08%
The net revenue of Vinamilk increased significantly in 2016 compared to
2015 due to the price of Vinamilk products went up 6% and the productivity
increase 30% compare to previous year, among them liquid milk, powder milk,
yogurt and condense milk went up 53%, 59% ,58% and 30% in respectively. In
2017, the client has started to stabilize so the proportion change in net revenue
is not as high as last year. As the consequence, the rate reduced with the ratio of
9.08% increase in revenue.
The revenue of Vinamilk is divided into 2 geological segments: domestic
and export. Although, the domestic is account for the large majority of
Vinamilk total sales, the export’ revenue still covered about 10% to 15% each
year. In export field, Vinamilk’s products has penetrated to more than 43
countries around the world in which there are some big countries such as:
Philippine, Australia, Canada, Russia, Korea,…In particular, in 2016, Vinamilk
exported milk to the Middle East market that gave the company significant
profit. Market share increased in three main categories: liquid milk rose 1.5% to
54.5%, yoghurt rose 0.4% to 84.7% and drink yogurt increased by 1.9%. 33.9%.
In 2016 and 2017, the ratio sale for export went up to 17 % and 12%,
respectively. This trend is expected to go up in the future and Vinamilk commit
to enhance the quality to satisfy the demand of both domestic and export.
Moreover, Vinamilk had expanded the capacity to meet the goal 3 billion
dollar in 2017. The Vietnam Dairy factory is upgrade to have the capacity 800
million ton per year, so the total capacity assumes to be nearly 2 million tons
per year. Thus, with the significant increase in capacity and advanced in
technology, it is hope that Vinamilk will have the high growth in revenue.

 Cost of goods sold

 2015 2016 2017
Cost of goods sold (billion VND) 23,818 24,459 26,807
% change in cost of goods sold (%) 2.7% 9.6%

 Gross margin
2015 2016 2017
Gross margin (billion VND) 16,262 22,336 24,234
% change in gross margin (%) 37.3% 8.5%
The gross profit of Vinamilk increased throughout the year 2015 to 2017
with changing growth rate. The growth rate of gross margin in 2016 and 2017
was 37.3% and 8.5%, respectively. Because the strategy is to reduce of cost
production, Vinamilk will get the increase in the growth of gross margin.

 Financial income
2015 2016 2017
Financial income (billion VND) 649 723 817
% change in financial income 11.34% 12.97%
Financial income/net profit after tax 9,364 10,278

 Financial expenditures and selling, general and administrative expenses:

2015 2016 2017
Financial expenses (billion VND) 163 102 87
in which: interest expense 31 47 30
S, G & A expenses 7,490 11,812 12,804
% change in Financial expenses -37.09% -15.04%
% change in interest expense 48.67% -36.69%
% change in S,G & A expenses 57.7% 8.4%
The financial expenses for VNM reduced each year by decreasing the
finance on debt. S,G and A expenses stand for selling expense and
administrative and general expense. In General, the S, G and A expense went up
slightly with increased rate every year. That was the result of the rise in
advertising expenses, the commission for agencies, the distribution channel, the
salaries and so on. However, this increase was less than the increase of net
sales, so as can be seen clearly, VNM tried to save the cost for all activities. In
the future, the selling, general and administrative expense is predicted to go up
because the expenditure for PR activities is assumed to go up and building the
brand image is the way to maintain the market share and customers.

 Profit/ (loss) from other expenses:

2015 2016 2017
Profit/(loss) in other expenses 70 104 210
% change in profit/(loss) in other expense 49.22% 100.55%

 Profit:
2015 2016 2017
Operating profit/ (loss) 9,271 11,160 12,226
Net profit/(loss) before tax 9,367 11,238 12,229
Net profit/(loss) after tax 7,769 9,364 10,278
EPS (VND) 4,864 5,831 6,355

% change in 2015 2016 2017

Operating profit/ (loss) (%) 20.38% 9.55%
Net profit/(loss) before tax (%) 19.97% 8.8%
Net profit/(loss) after tax (%) 20.5% 9.7%
EPS (VND) 19.88% 8.98%
The operating profit of Vinamilk increased year by year with the growth
rate higher than the growth rate of revenue that is the result of good control the
expenditure in cost of goods sold and the selling, administrative and general
expense and the gain from others income from financial activities. The earnings
before interest and tax ( EBIT) and the growth rate in net income of vinamilk (
net profit after tax) moved the same way with operating profit. the net profit of
vianmilk is promising to go follow up this trend in the future. This is the good
point for both dairy industry and Vinamilk’s investors. In addition, in
11/11/2017 11 member countries have agreed to change TPP to CPTTP is
considered a new version of TPP. Thanks to this new agreement, dairy products
will have more favorable tariffs as well as preferential policies in foreign
markets.
Earnings per share also move the same way with net income in this
period that was the result of issuing more share of Vinamilk in these years.
In general, the cost saving can help the company generate more profits.
Therefore, with the strategy of Vinamilk is cost leadership, Vinamilk invest
strongly on the sources of material such as associate to building the new factory
in New Zealand, expanding the herd cow to save cost of goods sold. Besides, by
divest some ineffective investment and focus on the core business, Vinamilk
can building the strong brand name on milk and enhanced their market share.

2.Balance sheet analysis:

Percentage change in balance sheet analysis gives the general view about
the variation of each account on balance sheet over years so that can understand
the client’s performances

Percentage change in : 2015 2016 2017

Current assets 8.24 11.6% 8.75%
Cash and cash equivalent -11.07 -51.76% 46.8%
Short term - financial statement 16.05 20.6% 1.03%
Total account receivable -3.23 6.75% 60.17%
Inventory 7.18 18.7% -11.07%
Other current assets 61.98 -15.8% -3.74%

As a whole, the current assets of Vinamilk increased every year, but the growth
rate varied from 2015 to 2017. In 2017, the growth rate of cash and cash
equivalent increased dramatically that was the result of the big amount of
money deposit at bank with the maturity less than 3 months. In 2015 and 2016,
cash and cash equivalent growth experienced the negative rate because in these
years Vinamilk disbursed 5,245 billion VND for invest in 3 new factories. In
2017, Vinamilk invested in New Zealand and Poland so Vinamilk keep the big
amount in cash and cash equivalent was used to disburse for those projects and
also the account payable.
The total account receivable fluctuated during this period. In particular, since
11/2017, the client changed its policy of debt to domestic customers.
Accordingly, the customer's payment time is increased to support better sales.
This change led to an increase remarkably in receivables in 2017 from
customers at 60.17% .Although, high receivable turnover that mean company
take competitive strategy from giving the customers more days to pay back the
amount of money, Vinamilk should reduce the amount in account receivable
because the growth rate is quite high to prevent the risk from some insolvent
customers and receive quickly amount of money sell on account to invest in
other production activities.
As can be seen, in 2016, VNM has high growth rate on inventory because in
that time the global milk price was forecasted continuing climb in 2017, VNM
reserve more raw materials to deal with the increase in price of inputs.
However, this is just the solution for short-time because milk is the material has
the short usage time. Therefore, it can be seen that in 2017 the growth rate in
inventory reduced to -11.07%

Percentage change in : 2015 2016 2017

Long - term assets 4.21 -0.38 34.14

Long - term receivable -4.86 4.57 146.05
Fixed assets 1.58 1.3 27.5
Investment properties -3.63 -3.79 -30.44

Long-term assets increased with the changing growth rate. The growth
rate in fixed asset went up each year because VNM has invested more on new
factories and high technology equipment to raise the production capacity.
Especially in 2017, the growth rate in fixed assets were very high that was the
result of the big investment in building Vietnam dairy factory, Vietnam powder
milk factory, Da Nang dairy factory and expanding Lam Son dairy one member
LTC, Vietnam dairy cow One member LTC and other projects with the total
capital investment is 10,275 billion VND up to 2018. In recent years, the real
 estate market has had difficulty so the investment in properties of VNM
reduced.

Percentage change in: 2015 2016 2017

A. Liabilities 9.78 6.38 54.8
I.Current liabilities 10.1 7.55 57.09
1. Short term loans 15.3 -96.71 -79.88
2. Accounts payable 15.54 16.79 54.79
3. Other short term liabilities 7.69 -8.13 370.16
II. Long term liabilities 6.45 -6.32 16.2
Long term borrowings 6.29 -11.19 -15.9
Other long term liabilities -65.64 -78.74 2669.54

As a whole, the growth rate in Liabilities had the decreasing in 2016,

then, in 2017 this growth rate got back to increase to 54.8% due to the
considerable increase on others short-term liabilities. The short term loans
decrease in the period 2016 and 2017. It means VNM borrowed and paid out all
short term debt within a year, so Vinamilk is high solvency.
The growth rate in account payable increased continuously during 2015 to 2017,
but this ratio is quite high and moved the same trend with the growth rate in
receivable which can be analyzed above, so it is implied that Vinamilk need to
have the strategy to reduce the sale on credit to have more money paying back
to supplier and invest more in others activities.
Although in recent years VNM had the investment in New Zealand and Poland
and improved many factories and farms with advanced technologies, it has low
rate of the long term liabilities (-11.19% in 2016 and -15.9 in 2017) by vertual
of having huge cash and cash equivalent in this period.

Percentage change in: 2015 2016 2017

B. Owners’ equity 5.67 7.08 6.55
Share capital 19.99 20.89 0.00
The share capital of Vianmilk increased every year that is the result of issuing
more share of company. In 2016, along with issuing common stock for
employees with 17,753,434 shares and 185,289,204 stocks with the rate 2:1 for
existing shareholder that push the share capital climbed 7.08%. In 2015 and
2016, with the high in owner’s equity, Vinamilk issued bonus share to stock
holder with the rate 2:1 to raise the share capital. Therefore, with the high share
capital, Vinamilk can strengthen their powerful in financial resources that helps
Vianmilk create more competitiveness in the market. In contrast, the percentage
change in 2017 is 0.00 due to the stop issuing shares in the market.
3. Financial ratios:
a.Liquidity ratio:
Liquidity ratio is the useful tool to measure the ability of Vinamilk to pay out
their short-term obligation

2015 2016 2017

Current ratio 2.78 2.89 2.99

Quick ratio 2.15 2.19 1.59

Cash ratio 0.23 0.1 0.09

b.Asset management ratio:

Assess management ratio measure how the company using its assets to
create sales. By looking at these ratios, the efficiency of company operational
management is determined.

Asset management ratio 2015 2016 2017

The inventory turnover 6.25 5.4 6.67

Days sale in inventory 58.4 67.6 54.7

Receivable turnover 19.1 16.32 11.12

Days sale in receivable 19.1 17.1 20.8

Payable turnover 10.86 9.55 6.76

Days sale in payable 33.6 35.5 44.4

Cash conversion cycle 43.9 49.2 31.1

c.Profitability ratio:

The profitability ratio measures the earning to investors. The investors tend
to prefer to invest in the company that generates more profitability ratios. This
ratio is the useful to indicate how efficient the company’s performance.

Profitability ratio 2015 2016 2017

Profit margin 19.38 20.01 20.14

(%)

Return on assets (ROA) 29.0 32.9 32.1

(%)

Return on equity (ROE) (%) 51.5 43.2 44.4

Financial leverage 1.3 1.3 1.4

The profitability ratio measures the earning to investors. The investors tend to
prefer to invest in the company that generates more profitability ratios. This
ratio is the useful to indicate how efficient the company’s performance.
The profit margin defines how well the firm generates the profit from net sale.
This ratio went up considerably from 19.38 in 2015 to 20.01 and 20.14 in 2016
and 20107 respectively. It was the result of the profit that VNM convert from
not only selling product and service but also the abnormal return in liquidation
SAB miller’s share and selling coffee factories. Thus, the increase in profit
margin ratio make the impressive on financial performance of Vinamilk, it had
good strategy to control all the expenditure to generate more profit.
The return on assets (ROA) indicates how efficiency the company generates the
profit from assets.As a whole, ROA of Vinamilk is an increased trend from 29
in 2015 to 32.1 in 2017.
The relation between ROE and ROA:
ROE = Profit margin * Asset turnover * Financial leverage
= ROA * Financial leverage
As can be seen, the financial leverage of Vinamilk almost stable during 2015
and 2017, so the ROE has the same movement with ROA. The upward trend in
ROE presents that the return on resources that is contributed by owners went up.
Financing on debt can help the company rise up their ROE, but the interest
expense hurt company’s profit that push ROE down turn. Thus, Vinamilk
manage efficiency on both operating and using assets.

Du point analysis:
Vinamilk 2015 2016 2017
Profit margin 19.38 20.01 20.14
x Total assets turnover 1.51 1.59 1.47
x Financial leverage 131.32 131.12 145.21
= ROE 3842.92 4171.7 4299.06

3.Conclusion:

In conclusion, the increase in profit margin leads to the significant

rise in ROE. Therefore, Vinamilk need to have the high profit margin to
push ROE high. Currently, the global milk material goes up; it will hurt
the Vinamilk’s net income. However, depending on the expanding
breeding activities, the associations with the Miraka Factory in New
Zealand, the Vietnam CPI expected to decline, etc., Vinamilk expect to
stay in high and stable in profit.
In general, in the period 2015-2017 Vinamilk does not have
abnormal fluctuations in indicators or only minor fluctuations (as
analyzed above).
III. Audit risk assessment.
Objective: Assess the risk of material misstatement in Vinamilk’s
financial statement to support for the audit process.
1. Business environment :
- In 2017, economic growth is 6.81%, GDP per capita in 2017
reached 53.5 million VND / year ($ 2,385), increase 170
USD over 2016. Inflation is controlled at 3.53%, lower than
the ceiling of 4%. These are good signals for the economy
that the company is operating.
- According to Circular 08/2017 of the Ministry of Industry
and Trade on registration for declaration of milk and
functional foods for children under 6 years old, from
10/8/2017, Milk business can actively raise prices below 5%
without having to ask for permission from the regulator. This
regulation may increase the level of revenue for the business.
- EU milk production slowed down last year while New
Zealand and Australia yields fell by 4% and 7%,
respectively. Dairy imports in the Asian market dropped to
5% => Facilitate domestic dairy market => Revenue can
increase
2. Business lines:
- Producing and trading in cakes, soy milk, beverages, canned
milk, powdered milk, nutritional powder and other dairy
products;
- Trading in food technology, equipment, spare parts,
materials, chemicals (except strong toxic chemicals), raw
materials;
- Real estate business, land use rights owned, leased or rented
by the owner (as stipulated in Article 11.3 of the Real Estate
Business Act 2014);
- Trading in warehouses, yards, transportation;
- Inland transportation of goods for the production and
consumption of the company's products;
- Production, sale and purchase of alcohol, beer, non-
alcoholic beverages, mineral water, processed food, tea for
tea, roasted coffee-phin-soluble (not produced at the head
office);
 - Producing and trading in plastic packaging (not working in
the office);
- Polyclinic (not working in the office);
- Cultivation and farming;
- Retail sugar, milk and dairy products, biscuits, confectionery
and products made from cereals, flour, starch and other
foodstuffs;
- Retail alcoholic beverages, non-alcoholic beverages (soft
drinks, sweeteners, whether or not carbonated), natural
mineral waters, wines and spirits in low or no alcoholic
content.
 Diverse business lines, operating in the environment
with high complexity
3. Legal Environment:
Enterprises operating under the Enterprise Law, Tax incentives and CIT
rates under Decree No. 218/2013 / ND-CP on corporate income tax
reduce tax expenses for joint ventures
4. Main business lines:
- Producing and trading in cakes, soy milk, beverages, canned
milk, powdered milk, nutritional powder and other dairy
products;
- Trading in food technology, equipment, spare parts,
materials, chemicals (except strong toxic chemicals), raw
materials;
- Real estate business, land use rights owned, leased or rented
by the owner (as stipulated in Article 11.3 of the Real Estate
Business Act 2014)

Revenue structure in 2017:

Sales of finished goods 49.526.103.800.509

(96.85%)
Sales of merchandise goods 1.446.258.338.101
(2.828%)
Other services 62.526.876.757
(0.12%)
Rental income from investment 17.187.652.809
property (0.03%)
Others 82.823.096.903
 (0.172%)
Total revenue 51.134.899.765.079

5. Changes in scale of operation of the enterprise:

- Share capital increased from 22,405,949,288,585 to
23,873,057,813,861 ,mainly from the appropriation of funds from equity
and business combination in 2017
- 20 big projects to improve production capacity and expand warehouses
and farms have been implemented in 2017, with a total investment of
more than 5,000 billion VND. The projects are analyzed, planned,
carefully assessed and allocated resources in an effective manner,
ensuring that projects are implemented in a timely manner to meet the
needs of the Company and the market.
- The purchase is completed and improved through the application of
good bidding and transparent bidding mechanisms with 100% domestic
suppliers, which has brought the optimum in cost and durability. Firmly
and diversify the supply of raw materials
=> Raw materials will decrease
- The planning, restructure and improvement of the warehouse system has
been upgraded according to the model of smart warehouse, applying the
automation technology, optimizing the area, increasing the machinery and
equipment and reducing manual labor.
=> Inventory number, inventory turnover index will decline, labor costs
decrease.
Based on the above analysis and comment, the group concludes that:
- Risks related to the entire financial statement: yes
- Account specific risk: yes
Vinamilk has a diversified business model, involving a number of
industries. However, the financial indicators have clear evidence , the
financial statements of the enterprise have applied the Vietnamese
Accounting Standards, the Vietnamese Business Accounting Standards
and the related legal regulations which related to the preparation and
presentation of financial statements.

 Therefore, the potential risk assessment on the financial statements is

average.

(1,000,000 VND)
31/12/2016 31/12/2017 Fluctuation
Cash 599.923 834.435 234,512 39.09 %

Cash 55.500 128.900 73.400 132.25%

equivalent
Receivable 2.191.348 3.613.981 1.422.633 64.92%

Inventory 4.521.766 4.021.058 -500.707 -11.07%

Fixed Asset 14.815.629 19,386,985 4.571.355 30.86%

Payable 2.561.910 3.965.691 1.403.780 54.79%

Revenue 46.965.003 51.134.899 4.169.896 8.89%

Type of Description Related Suggested audit

risk accounts procedures
Inherit -Acquisiton of two companies - Increase in - Checking balance
risk Vietsugar and Angkor Dairy Cash and cash of bank accounts
Products Co., Ltd in 2017 equivalents -Checking
-Fixed assets calculation of
depreciation
expense
- Checking or
counting a tangible
assets
Inherit The "Just in time" -Decrease in - Checking or
risk, procurement strategy has inventory and counting inventory
control been applied together with work in storage
risk the optimization of inventory process - Checking goods
management and warehouse receipt and issue
planning at the subordinate cycle
units that have brought about
remarkable results in the
Company’s inventory control
and working capital turnover,
compared to the previous
year
Inherit, Since mid-November 2017, - Increase in -Decribing the
Control the Company has changed its account receipt of a direct
risk credit policy for domestic receivables written respone
customers, in which the credit from Vinamilk’s
period was increased to customers to verify
support sales better. This whether the
change led to an increase in information is
receivables from customers accurate or not
 and reduced receivables
turnover ratio from 21.3 to
17.6
Inherit At the end of the year, the - Increase in - Verifying the
risk Company applied a new note payables notes from third-
payment policy with some party sources
banks lending against the
value of the Company's
payables to some suppliers.
This policy helped the
Company reduce its payables
turnover to 8.21 in 2017 from
10.29 in 2016.
Inherit -launching nearly 20 new - Increase in -Verifying the
risk products of liquid milk, milk revenue accuracy of the
powder, yogurt, drinking client’s record for
yogurt, baby cereal, soya the sales
milk, ice cream and transaction.
beverages, the innovation has -Checking sale
offered consumers richer and invoices and
more comfortable vendor’s invoices
experiences with diversified
choices of products.
-Market share increased by
2%

Control risk:
- The team evaluate the performance of Internal risk management of
Vinamilk:
+ Vinamilk is the pioneering company in Vietnam applying advanced
management model (without control board). Accordingly, the Audit Committee
of the Board of Directors will be responsible for ensuring that the Company has
an effective internal risk management and control system. This model is
effective from 15/04/2017.

+ General standards for senior management are defined in the company's

Charter and Management Regulations, including:
• "Careful" Responsibilities.
• Responsibility "Honest and avoid conflicts of interest".
• Responsibility for "information security".
• Caring and loyalty.
This assessment is conducted in two phases: personal self-assessment and
direct assessment management. For executives, the board is also based on the
results of the supervisory review of the CEO
- The company has an ISO 31000 risk management system. In 2017, Vinamilk's
subsidiaries have also set up a comprehensive risk management system based
on ISO 9001: 2015, risk-based thinking:
+ Risk is always monitored and updated to take appropriate measures;
Employees are aware and responsible for risk management. The internal self-
assessment system actively contributes to staff awareness of risk management
and internal control
+ Business processes are issued, updated and managed by the specialized
department. The results of the internal audit show that compliance with current
procedures is very good;
+ Has been deploying the management system for approval, storage of
traditional processes (hardcopy) to online management system to optimize the
time of implementation steps, convenient for documentation, review , approve,
look up information while limiting errors.
+ Internal Audit Charter, Internal Audit Handbook as well as internal audit
practice show that Vinamilk's internal audit has met the basic requirements of
internal auditing when compared with The internal audit is co-issued by the
Ministry of Finance and the World Bank ("WB").
+ The Audit Subcommittee monitors the effectiveness of activities, measures to
prevent frauds, violations of rules, regulations of the Company, professional
ethics or law violations. At present, the Company has set up a mechanism to
direct and implement fraud prevention measures.
 From these, Vinamilk's internal control team is good and quite effective.
The control risk is low
Reasons for the setting up the materiality: We use three levels to set up the
materiality for each account with: 0- not fluctuate or affect by other account
1- highly doubtful level
5- lowly doubtful level
3- between 1 and 5
+ For Cash and cash equivalents, auditor can check balance of cash account
with bank, so it’s difficult to happen the error so we set level 5 for these
account.
+ For inventory, vinamilk has amount of invetory at high level, Vinamilk
change early their method to calculate inventory, some external documents are
related to third-party that can not verify them, so we set the highest level 1 for
this account.
+For Investment and development fund or Share capital,these account are not
high fluctuation or stability in 2017 so we set level 0
6. Conclusion:
In conclusion, due to the lack of experience and knowledge, our team
only give some subjective comments. However, the group believes that
the above information can support the initial stages of the audit. In
addition, we commit that the data in the report is accurate and taken from
the official report of Vinamilk.