Audit objectives of auditing fixed assets in financial audit conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch...13 1.3.. Recommendations to improve the audit of
CHARACTERISTICS OF AUDIT OF FIXED ASSETS IN
Audit objectives of auditing fixed assets in financial audit conducted by
The primary goal of auditing fixed assets is for auditors to gather sufficient and appropriate evidence to confirm the reliability of the related financial information This process ensures the accuracy and completeness of asset valuation and disclosure in financial statements Additionally, the audit of fixed assets provides essential documentation that serves as a reference for auditing other related financial cycles, enhancing the overall integrity of the financial reporting process.
To effectively evaluate fixed assets, auditors must gather sufficient evidence to ensure the accuracy and reliability of the related accounting data The primary objective is to verify that the fixed asset records accurately reflect the true economic nature of the assets and comply with relevant standards Ensuring the integrity of the database related to economic transactions and fixed asset balances is essential for an honest and transparent financial statement.
Overview of the detailed auditing objectives of fixed assets is presented in Table 1.1, below:
1 Existence Acquisitions and disposals are properly authorized.
The recorded fixed assets are existence.
The recorded fixed assets are owned by the company.
Disposals of fixed assets represent the transfer of the risks and benefits in them to third parties.
3 Completeness Acquisitions and disposals, excluding the revenue items, are included in fixed asset account.
All fixed assets owned by the company are recorded.
All depreciation is recorded in the accounting records and costing records.
4 Accuracy Acquisitions and disposals of fixed assets are correctly calculated in accordance with relevant accounting principles and proper capital/revenue decision.
Depreciation is correctly calculated using appropriate depreciation methods and useful lives.
The carrying amount of fixed assets reflects events affecting their valuation in accordance with relevant accounting standards.
6 Cut-off All acquisitions and disposals are recorded in the right period.
Depreciation is allocated in the right period.
7 Classification Capital expenditure and revenue expenditure, and finance lease and operating lease are properly classified.
Cost or revalued amount of fixed assets and related accumulated depreciation have been properly summarized for disclosure in the financial statements.
Table 1.1: Detailed audit objectives for fixed assets
Audit of fixed asset in financial audit process conducted by Vietnam Auditing
A fixed asset audit is an essential part of the overall financial statement audit, ensuring the accuracy and integrity of an organization’s asset records The audit process for fixed assets typically follows a structured sequence, including three key steps: planning the audit, executing the audit plan, and completing the audit Proper planning helps identify potential risks and outline audit procedures, while performing the audit involves verifying asset existence, valuation, and compliance Finally, completing the audit ensures all findings are documented and reported effectively, contributing to accurate financial reporting and compliance.
According to VSA 300, audit plans encompass strategic audit planning, overall audit planning, and designing detailed audit programs to verify each item on the audit report When auditing fixed assets, the planning process involves developing a comprehensive audit plan and creating specific audit programs A key step in this process is understanding the client's information to ensure a thorough and effective audit approach.
Understanding client information is essential for effective audits, as it enables auditors to identify potential frauds and errors by comprehending the client’s business activities Recognizing that internal and external factors significantly influence a company's structure and performance helps auditors assess risks more accurately The initial step of understanding a client’s operational characteristics allows auditors to identify business risks and develop appropriate audit procedures, ensuring a thorough and risk-focused audit process.
Fixed assets are greatly influenced by the business sector, activities, and strategic goals of an enterprise For instance, construction companies typically hold a higher proportion of fixed assets compared to trading firms Auditors conduct specific procedures to assess clients' fixed assets and overall financial health, ensuring accurate financial reporting and compliance with accounting standards Understanding these factors is essential for comprehensive asset management and effective auditing processes.
Understand the field of activities and business lines:
Different industries have unique characteristics that require tailored accounting systems and principles Auditors must gather comprehensive information, including general economic knowledge, applicable government policies, organizational structure, production materials, departmental roles, and the types of goods and services offered by the enterprise To collect this data, auditors should engage with predecessors, communicate directly with employees and the Board of Directors, and consult relevant books and media sources This information enables auditors to understand the company's fixed assets, their roles in business operations, and the main types of assets involved.
Review the previous year's audit files and general audit files
This procedure enables auditors to understand key issues in production, business activities, and identify past mistakes or areas requiring discussion with management It helps reduce audit time and costs while ensuring the credibility of financial statements For example, last year's audit report issued qualified opinions due to insufficient evidence regarding the accurate and legal presentation of the firm's fixed assets Therefore, addressing this issue is crucial this year to provide clearer clarification for auditors and ensure audit quality.
Related party transactions can significantly impact the accuracy, transparency, and legal compliance of financial statements Due to their complex and sensitive nature, these transactions should always be thoroughly and clearly disclosed in the financial statements of the audited entity to ensure transparency and stakeholder trust.
Understand the factors that influence businesses.
Understanding the factors influencing business operations is crucial for accurate audit assessments Suppliers, customers, competitors, alternative products, and technologies directly impact production and business activities, while external factors such as political, economic, socio-cultural, and technological environments also have indirect effects Therefore, auditors must evaluate how enterprises interact with both endogenous and exogenous factors to ensure comprehensive risk assessment Special attention should be given to related parties during fixed assets audits to maintain accuracy and compliance in the audit process.
Understand the direction and development strategy of the business
An enterprise’s development strategy plays a crucial role in shaping its growth and asset structure, directly influencing fixed assets like factories and equipment For instance, a company aiming to expand its market share and boost product consumption must invest in building new facilities and acquiring machinery, which impacts its fixed asset valuation During audits, it is essential to verify whether completed construction projects and purchased equipment are eligible for asset recognition, a process that involves complex assessments requiring sound legal understanding and expert judgment from auditors.
1.3.1.2 Understanding accounting and internal control systems
Auditors evaluate the effectiveness of internal control over fixed assets by collecting evidence on the completeness, suitability, and rigor of internal control regulations Their assessment involves conducting interviews with the Board of Directors, chief accountants, and related personnel, as well as reviewing relevant documents and observing internal control activities Key areas of focus include verifying the accuracy of asset records, ensuring compliance with internal policies, and assessing the adequacy of control procedures to safeguard fixed assets This comprehensive internal control survey helps auditors identify potential weaknesses and ensure reliable financial reporting.
- Do you plan and estimate for purchasing of fixed assets?
- Is the unit regularly comparing between the fixed assets subsidiary ledger and the fixed assets nominal ledger?
- Is there a periodic physical count of fixed assets and reconciliation with fixed asset accounting books?
- Are the differences between the estimated price and the actual price reviewed and approved regularly?
- When selling and liquidating fixed assets, does the Liquidation and Sale Council include members according to regulations?
Certainly! Here's a rewritten paragraph focusing on key points, optimized for SEO:"Proper accounting treatment for expenses incurred after increasing the historical cost of fixed assets is essential for accurate financial reporting Companies must distinguish between costs that enhance asset value, affect the useful life, or are directly attributable to production and business activities Clear policies should outline whether such expenses are capitalized or expensed in the period they are incurred, ensuring compliance with accounting standards Implementing a consistent approach to differentiating between these expenses helps optimize asset management, improve cost accuracy, and support sound financial decision-making."
When evaluating an enterprise's accounting practices, it is essential to verify that the accounting regime and depreciation methods for fixed assets align with current regulations Additionally, auditors should assess the management of fixed assets, including the formulation of regulations, principles, and procedures for their preservation Proper determination of materiality and comprehensive risk assessment are critical steps to ensure accurate financial reporting and effective asset management.
According to Vietnam Auditing Standard No 320, when conducting an audit, auditors must pay attention to the materiality of information and its relationship with audit risk.
The auditor establishes the initial materiality level for the entire financial statement, typically based on key financial targets such as profit, revenue, or total assets Subsequently, the auditor calculates the performance materiality and determines the error threshold that can be disregarded without affectin the overall accuracy By evaluating the actual error levels in fixed assets and comparing them to the predefined error threshold, the auditor assesses whether the financial statements are free from material misstatement, leading to the issuance of an unqualified or qualified opinion.
Audit risk is the possibility that an auditor may issue an incorrect opinion on financial statements that are materially misstated The evaluation of audit risk involves analyzing three key components: inherent risks, control risks, and detection risks, which are interrelated in a comprehensive assessment model Understanding these components helps auditors identify potential weaknesses and ensure the accuracy and reliability of financial reporting Properly assessing audit risk is essential for auditors to design effective audit procedures and provide a true and fair view of a company’s financial position.
Understanding common errors in the audit cycle is essential when assessing audit risks In fixed assets, these errors frequently stem from inherent risks such as misclassification, improper valuation, inaccurate depreciation calculations, and incomplete asset register records Recognizing these potential issues helps auditors to identify areas of higher risk and enhances the effectiveness of the audit process Incorporating this knowledge into audit planning ensures a thorough evaluation of fixed assets, reducing the likelihood of overlooked errors and strengthening overall audit quality.
CURRENT PRACTICE OF FIXED ASSETS AUDIT IN AUDIT
Planning the audit by Vietnam Auditing and Valuation Company Limited –
Preparing an auditing plan for fixed assets is conducted by AVAHN according to the following steps:
- Collecting basic customer information and assessing contract risk: details in working papers A110 - Accept new client and assess contract risk.
- Understand the client’s business and industry: details in working papers A310 - Understand customers and the working environment
Understanding the internal control system within enterprises is essential, with a particular focus on fixed asset management and related accounting systems Key insights can be gained from WP A610, which provides detailed guidance on internal controls for fixed assets, along with a comprehensive assessment framework Additionally, WP A450 offers valuable information on the overall evaluation of the internal control system in a unit Familiarity with the fixed asset cycle and utilizing questionnaires designed for internal control evaluation are crucial for effective asset management, as exemplified by ABC Company Limited.
- Determining the materiality and risk assessment.
- Registration of personnel involved in audit.
- Design of audit program: details in working papers D730 - Audit program of fixed assets at ABC Company Limited.
2.1.1 Accept client and perform initial audit planning
To decide whether to accept a new client or not, the auditor collect some basic information of ABC according to the following WPs:
Name of client: ABC Company Limited
Content: Accept new customers and assess contract risks
2 First year of financial statement auditing: 2018
3 Number of years providing audit services: 0
4 Name and title of the main contact person: Nguyen Thi Bich Van – Accountant
5 Address: Dinh Tram Industrial Zone - Viet Yen - Bac Giang
6 Type of business: Limited Company
8 Established year: 2017 - Number of years of operation: 10 years
9 The business scope of the Company are:
Production of mobile phone covers, high-quality electronic components for mobile devices and digital devices.
10 Specific legal regulations related to the operation of Company (if any): None
Address: Dinh Tram Industrial Zone - Viet Yen - Bac Giang
Shinhan bank Vietnam Bac Giang
Name Address Business areas Capital Proportion
ABCD Company Limited Parent Company Sale - Buy
17 Check information related to businesses and leaders through media (newspapers, magazines, internet, etc.): No adverse information
18 Accounting Standards applied by the Business in the Preparation and Presentation of Financial Statements: Vietnamese Accounting Standards
20 Auditing standards applied by auditors and audit firms as the basis for audit opinion: Vietnamese Standards on Auditing
21 Services and reports are required and complete date :
Auditing Financial Statements for the fiscal year 2018 25/03/2018
22 Describe why companies want to have audited financial statements and stakeholders need to use it:
Since the company is a foreign-invested enterprise, it is required to be audited by law
Events of the current year
The company has full of qualified personnel, experience and resources necessary to continue serving customers
Any doubts arising in the course of work related to the integrity of the BOD
The audit report on the previous year's financial statement contains not"unqualify opinion"?
Is there any indication that the repetition of the problem led to such an audit opinion this year?
Are there limits on the scope of the audit that led to the qualify/ refusal opinion on audit reports this year?
Are there any doubts arising in the course of work related to the integrity of the BOD?
Does the company operate in a special regulatory X environment, operating in a recession, reducing its profitability?
Are there any issues related to the serious non- compliance of BOD?
Are there big doubts about the company's continued viability?
Are there any adverse issues, litigation, irregularities, and material risks related to the business sector?
Does the company have many important transactions with related parties?
Does the company have unusual transactions in the year or near the end of the year?
Does the company have complex accounting or business problems that are controversial, but the current accounting standards and regimes do not have specific guidelines?
Was there a serious defect in the internal control system during the previous year audit?
Are there signs that the internal control system this year has serious defects affecting the lawfulness, reasonable integrity of the financial statements?
Does the total fee from the customer for a large part of the total revenue of the company?
Does the customer fee a large portion of the income of the BOD member in charge of the audit contract?
Are there any fees that are overdue for an extended period of time?
The company or a member of the audit team, within the scope of their professional involvement in any dispute involving the customer
Does the member of BOD and the audit team leader participate in the auditing group for more than 3 consecutive years?
A member of the company's Board of Directors or an audit team member must disclose any familial, personal, or close economic relationships with customers, employees, or members of the customer's Board of Directors Such relationships can compromise objectivity and the integrity of the audit process Ensuring transparency about these connections is essential to maintain compliance with corporate governance standards and uphold ethical business practices.
The company or member of the audit team is a member of the fund holding shares of the customer
Are any of the following people currently employees or directors of clients:
- Members of the audit team (including BOD members)
- former member of the BOD X
- Individuals who have a close relationship or family relationship with the above persons
Is a member of the board of management or any members of the audit team going to become employees of the customer?
Is there a loan or guarantee, unlike normal business, between the plan and the company or a member of the audit team?
There is any conflict of interest between this customer and other existing customers.
Does the company provide other services to customers can affect independence.
There are other factors that make us think of refusing to appoint audit.
III EVALUATION OF CONTRACT RISK: LOW
Table 2.1 : Excerpt from WPs of auditors - A310 - Accept new customers and assess contract risks
ABC Co., Ltd is a fully foreign-owned limited company established in Vietnam, with its head office located in Dinh Tram Industrial Zone, Viet Yen, Bac Giang The company operates on a fiscal year from January 1 to December 31 Specializing in manufacturing mobile phone covers and high-quality electronic components for mobile and digital devices, ABC Co., Ltd is recognized for its focus on electronic product production After a thorough assessment, auditors have determined that the company's contract risk is low, leading them to accept ABC as an audit client.
2.1.2 Understand the client’s business and industry
For regular customers, all relevant information from previous audits is stored in the company's "General Profile," streamlining the process by requiring only new data, such as changes in accounting policies, during each subsequent audit However, for first-year audits like ABC Company Limited, the main auditor must gather comprehensive information about the customer's history, from establishment to the current audit year, to ensure a complete and accurate assessment.
2.1.2.1 Understand industry and external environment
Business sector and business trend:
In today's rapidly growing information technology sector, the electronic and telecommunications equipment market is constantly evolving with a diverse range of innovative products, meeting the increasing consumer demand This creates a favorable environment for electronic component manufacturers like ABC Company Limited to expand their product offerings and scale of operations, capitalizing on the growing market opportunities.
This is an industry with stable input prices and abundant supply
The company faces intense global competition from numerous international brands, including Germany, America, Malaysia, China, Japan, and other Korean subsidiaries producing similar products During challenging economic times, this competitive pressure becomes even more fierce, requiring strategic efforts to maintain market position and differentiate offerings.
The accounting regime applied to business lines of ABC: Circular No 200/2014 / TT-BTC dated 22/12/2014 of the Ministry of Finance.
ABC Co., Ltd., as a foreign-invested company, is governed by corporate law and must comply with relevant legal regulations such as CIT law, VAT, and PIT The company's operations are subject to a standard corporate tax rate of 20%, with no provisions for tax exemptions or reductions Additionally, foreign employees working in Vietnam are regulated under specific personal income tax laws, ensuring legal compliance across all aspects of the enterprise’s fiscal obligations.
Currently the company mainly imports goods from abroad, so it is also affected by Incoterm terms.
Understand main business operations and circumstance
ABC Co., Ltd was established on December 19, 2017 The Company's investment capital is VND 8,360,000,000, of which the charter capital is VND 8,360,000,000
The nature of revenue sources, products or services and markets is manufacturing with main activities:
- Manufacturing mobile phone covers and high-quality electronic components for mobile devices and digital devices;
- Processing (including plating, printing, assembly) mobile phone covers, electronic components for mobile devices, digital devices;
- Manufacturing and repairing molds for casting mobile phone covers, mobile devices and digital devices;
- Installing, repairing and maintaining spray equipment for painting details on mobile phones.
Raw materials for production are mainly plastic, paint and solvent These are materials with stable prices and abundant supplies.
Method to conduct the production and business activities: according to orders.
Production and Business location: Dinh Tram Industrial Zone, Viet Yen, Bac
In today's digital technology era, ABC specializes in supplying high-quality products to major smartphone manufacturers like Samsung They offer a diverse range of models and types, supported by advanced production technologies, to meet the evolving needs of their clients Key customers include Dowon Eng Vina Co., Ltd and Korea Polytech Co., Ltd., highlighting ABC's strong presence in the electronics manufacturing industry.
ABC Company primarily imports raw materials from its group members worldwide, including XYZ France Co., Ltd., XYZ Korea Co., Ltd., and Olex Australia Co., Ltd., leveraging seamless coordination among these subsidiaries This integrated supply chain enables ABC Company to maintain a steady source of high-quality raw materials, ensuring smooth production processes across its operations The company's strategic sourcing from trusted international suppliers highlights its commitment to efficiency and reliability in its supply chain management.
Review previous year audit records and general audit records
As a newly established manufacturing enterprise, ABC's first year of production and business activities lacks prior year data for comparison Auditors recognize ABC's status as a recent startup, emphasizing the importance of carefully recording and reconciling transactions related to large fixed assets during the audit process.
Identify ownership and related parties
ABC Company is a 100% Korean-owned business, with its related parent company, ABCD Company Limited, headquartered in Korea Fixed assets involved in capital contributions are primarily transferred or allocated from Korea based on mutual agreements Major purchases or new investments in high-value fixed assets require approval from the majority of the Board of Directors.
Understand about applied accounting system
- Applied accounting regime: Circular No 200/2014 / TT-BTC dated 12/22/2014 of the Ministry of Finance.
- Accounting year: Starting on January 1 and ending on December 31 every year
- Currency unit used in accounting: Vietnam Dong (VND)
- Accounting book form: General journal.
Specifically, the information found above is illustrated in the working paper below:
Understanding the environment and operating context is essential for identifying and assessing events, transactions, and business practices of the holdings, which significantly influence financial statements This knowledge helps detect potential risks of material misstatement, whether due to fraud or misrepresentation, ensuring accurate and reliable financial reporting.
1 Understand the operating environment and external factors affecting the business
I.2.The issues of the business sector and business trends
Name of client: ABC Company Limited
Content: Understand customers and working environment
Implementer HTH 10/01/2019Reviewer 1 BMC 15/01/2019Reviewer 2 NBC 15/01/2019
General information about the industry in which the business is operating and its industry trends include, but are not limited to, the following information :
In the current era of rapid technological advancement, the electronic and telecommunications equipment market is experiencing continuous growth, driven by a diverse range of products and increasing consumer demand This favorable environment presents significant opportunities for companies manufacturing electronic components to expand their product portfolios and scale their operations ABC Company Limited is positioned to benefit from this booming market, leveraging the rising demand to achieve business growth and competitive advantage.
Price competition: competition from the same industry
Cyclical or seasonal activities No
Technology related to the unit's products, changes in production technology (if any)
Input supply for industry and price This is an industry with stable input prices and abundant supply
General information about legal factors include, but is not limited to, the following:
The accounting regime and accounting practices (if any) apply to business lines of enterprises:
Circular No 200/2014 / TT-BTC dated 12/22/2014 of the Ministry of Finance.
The legal system and regulations apply to the type / business of the enterprise and have a significant impact on the operation of enterprises
The policies issued by the State are affecting the business activities of enterprises
"Monetary policy: there is no separate regulation
Foreign exchange: there is no separate regulation
Financial incentives of the Government: none
Tariffs, barriers to trade: no "
Under Vietnam's current tax regulations, enterprises are required to declare and calculate Value Added Tax (VAT) following the guidelines outlined in the prevailing tax laws The calculation of Corporate Income Tax (CIT) depends on the latest applicable rates and is ultimately determined by the results of examinations conducted by the competent tax authorities.
Other taxes: Other taxes and charges shall be declared and paid by the enterprise to the local tax office in accordance with the current regulations of the State.
Environmental regulations affect the business and operations of enterprises
There are no separate regulations, implemented under Law No 52/2005 / QH11 - Environmental protection
2.3 Other external factors affect the business
General information about the industry in which the business is operating and its industry trends include, but are not limited to, the following information :
The general state of the economy Economic growth is lower than the same period Change about interest rate, exchange rate No
3.1 Operations and main business circumstance
Information about the overall business environment of the current year includes, but is not limited to, the following:
The nature of revenue sources, products or services and markets
Production stages and processes, activities affected by environmental risks Manufacturing mobile phone covers and high-quality electronic components for mobile devices and digital devices
Trading activities and activities directly related to the purchase and sale of goods Joint ventures, links, and outsourcing activities are important
Geographic dispersion and market segmentation
Market in some northern province: Bac Giang, Bac Ninh, Phu Tho, Hoa Binh… Place of manufacture, warehouse, office, number and location of inventory
Workshop, office in Bac Giang
Main customers Dowon eng Vina Co., Ltd., Korea
Main suppliers ABCD Co., Ltd, XYZ France Co., Ltd.,
XYZ Korea Co., Ltd., Olex Australia
Important agreements with laborers Salary, bonus, social insurance
Activities and expenditures for research and development
Related party transactions Purchasing, sale with mother company, purchasing from the company in the same group
3.2 Type of ownership and management
Type of ownership: Limited Company
ABCD Co., Ltd Own 100% capital
ABCD Co., Ltd Parent Company Purchase and Sale
3.3 Investment and finance activities of enterprises
Buying, selling, separating, increasing or decreasing business capital has been planned or implemented recently
Capital investment activities; Buying / selling securities and debts; Investments in units do not result in consolidated financial statements
Subsidiaries and affiliates Parent company
Debt structure and related provisions, including financing and financial leasing agreements are reflected outside the CIT tables.
Beneficiaries (domestic, foreign, business credibility and experience) and related parties:
Use derivative financial instruments No
3.4 Understanding the applied accounting system
Accounting policies apply to significant transactions
Applied accounting regime: According to Circular 200/2014 / TT-BTC issued on December 22, 2014 of the Minister of Finance guiding the business accounting regime.
Types of accounting estimates Depreciation
Allocate prepaid expense liabilities and foreign currency transactions;
Accounting policies for new / controversial
New accounting rules, or new ones (if any) No
Changes in accounting policies (if any) No
3.5 The objectives, strategies and business risks involved
The development of new industries, products or services
Due to the specific characteristics of the profession, it is necessary to change the product code continuously according to customer requirements
Expand the business scope No
Use of information technology Misa accounting software 2017
Implement a strategy, especially the influence that leads to new accounting requirements
Nguyen Thi Bich Van Accountant
Information about the bank where the enterprise opens its account
Name of bank Address Note
Shinhan Bank Vietnam Bac Giang
Information of lawer who is hired by the company No
Unusual transactions and risks detected
- Transactions with related parties (Company ABCD)
- Due to the different accounting system of different accounting operations performed by an employee, it is easy to make mistakes
Conclusion: Inherent risks are medium
Table 2.2 : Excerpt from WPs of auditors - A310 – Understand customer and working environment
2.1.3 Understand the internal control of enterprises in general and of fixed assets in particular and accounting systems related to fixed assets
Auditors conduct multiple face-to-face meetings with the Board of Directors to gather comprehensive information on the company's organizational structure, administration, processes, policies, and internal control procedures They also review available company documents to evaluate ABC Company's internal audit system, enabling them to determine materiality and assess associated risks effectively.
Implementing the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch
ABC Company was founded on December 19, 2017, and has recently begun production, although its facilities still face several shortcomings In its first fiscal year, ABC primarily invested in acquiring fixed assets to support its production and business operations An auditor's table details the company's fixed assets, highlighting the initial investments made to establish its operational capacity.
Units used Date Historical cost
1 Plating machine for plastic products works by electricity
2 Plating machine for plastic products works by electricity
3 7KVA UV welding machine works by electricity
(making phone case) works by FOS-160S electricity
6 Oil pump parts in CNC machines
11 16-seat Honda Hyundai car PTVT
Sources: Documentation of audit files at AVAHN
Table 2.11: List of fixed assets of ABC Company
Intangible fixed assets and financial leasing assets are not available in the first year because:
First, ABC Company is a small-scale company that only uses small value software like Misa in accounting Additional protection and support software such as
Kaspersky, Picturethis, Microsoft office also do not have great value so they should be classified into tools and supplies to allocate in the period.
ABC's ten-year investment license was granted by Bac Giang Industrial Zones Authority, enabling the company to rent land and factories for immediate business operations Due to the short duration of the license, ABC only secured temporary rental agreements and has not obtained a land use right certificate.
Third, ABC's machinery is mainly imported from abroad and also invested by the parent company so there is no financial leasing asset.
For the above reasons, when presenting the audit procedures in the implementation of the audit process at ABC Company, I will go into the study of the tangible fixed assets.
During the audit preparation phase, auditors assess the internal control system related to the fixed asset cycle, ensuring its effectiveness In this step, they evaluate the implementation of control procedures by reviewing work papers, specifically WP C510 This process helps verify that appropriate controls are in place and functioning properly to mitigate risks associated with fixed assets.
- Internal control check for fixed asset and capital construction cycle To do this, auditors perform the following procedures:
- Direct interviews with accountants and fixed asset-related employees in the unit on procurement, asset liquidation, regulations and management and maintenance of fixed assets.
- Collect full documents on fixed assets for procurement, liquidation, investigation of control marks on the collection records.
Name of client: ABC Company Limited
Content: INTERNAL CONTROL CHECK FOR
FIXED ASSETS AND CAPITAL CONSTRUCTION
EVALUATION OF EFFICIENCY OF INTERNAL CONTROL PROCEDURES OF THE FIXED ASSETS AND CAPITAL CONSTRUCTION CYCLE
Key control Sign Frequ ency
IC check procdures Refe rence
The procurement and investment of fixed assets
Fixed assets reflected in financial statements are tangible assets used in business operations or management Their acquisition must align with approved plans and proposals for purchase, authorized by the relevant authorities during the period.
Check, compare with the annual plan and the purchase proposal (each time) is approved before implementation or not.
The department responsible for procurement of the asset must be independent of the user and / or accounting department.
KS 2 Interview to collect information and / or collect unit assignment documents.
Make records on the delivery of fixed assets with the participation of suppliers and relevant departments.
Based on the transactions selected in step (1): Check, the delivery and receipt minutes have enough signatures of the parties (suppliers, purchasing department, used parts).
[Responsible department] must compile a fixed asset dossier with all related documents and update as soon as there are changes.
KS4 Based on the transactions selected in step (1): Borrow the related fixed asset records Review the completeness and appropriateness of this package.
[Periodically] organize the inventory of fixed assets with the participation of individuals independent from the management and use department Property should be labeled for tracking.
KS5 5 Borrowing documents summarizing the inventory results of the unit, interviewing the participants in this process Consider processing results after inventory.
6 Participate in witnessing inventory at the end of the accounting period.
"Completene ss": All fixed assets of the enterprise
Fixed assets owned by the company, including those under financial leases, are fully reflected in the financial statements to ensure accurate asset valuation The relevant department is responsible for collecting detailed fixed assets information and unit assignment documents to maintain comprehensive and up-to-date records.
Dossiers and documents related to fixed assets must be transferred to the accounting sections for timely updating into accounting books.
KS7 8 Based on the transactions selected in step (1): View the date of the accounting book and compare with the date of the original voucher.
Fixed assets transferred from the management and use department must have a transfer slip approved by the competent authority.
KS8 9 Select the fixed asset transfer operation in the period to check whether the fixed asset transfer slip has full approval.
Lost property must investigate the cause Accountants shall promptly report lost assets on the accounting books and property monitoring books.
KS9 10 Interview units how to handle lost property cases and collect processing records.
The historical cost and residual value of a fixed asset are accurately reflected in the financial statement.
Accountants must compare figures on quotations, contracts and invoices to ensure the accuracy of the historical cost prices recorded in the accounting books.
11 Based on the transactions selected in step (1): Check and compare data between quotes, contracts, invoices with the original price recorded in the accounting books Fixed assets must be depreciated in accordance with the company's regulations on the useful life of each type of asset.
12 Based on the selected transactions in step (1): Determine the depreciation period for these fixed assets and compare them with the regulations of the unit.
The accountant must check to ensure that the beginning / stop of depreciation is the time of starting / stopping the use of
13 Based on the transactions selected in step (1): Determine whether the time of fixed assets starting depreciation for these fixed assets is timely.
Any property that shows signs of failure, obsolete, under- performing, etc must be clearly noted.
14 During inventory observations, KTV considers whether or not the unit tracks broken or outdated assets or not.
The accountant should have a detailed asset tracking book.
Periodically accounting the accounting book reconciliation with the asset tracking book.
Any deviation needs to be investigated and reflected in accounting books.
15 Does the audience compare the monitoring book of fixed assets with the accounting books to see if there are any differences? Are the errors investigated and processed?
Auditors believes in the internal control of the cycle can prevent / timely detect material misstatement – Perform basic tests at medium level
Table 2.12: Excerpt from WPs of auditors - C510 - Internal control check for fixed asset and capital construction cycle
The senior auditor performs comprehensive analysis procedures to identify abnormal and significant fluctuations, focusing on areas of concern during the audit process Specifically, for fixed assets, auditors review accounting data related to historical costs and assess depreciation for accounts such as 211, 213, and 214 They compare figures from the trial balance, general ledger, and financial statements to ensure consistency and accuracy.
Since ABC Company conducted the first year audit for the period from December
From the company's founding on September 19, 2017, until December 31, 2018, auditors only conducted vertical analysis procedures, such as evaluating the investment rate by comparing the historical cost of fixed assets to total assets, and assessing asset use performance through revenue relative to the historical cost of fixed assets Notably, auditors did not perform horizontal analysis during this period, which could have provided insights into trends over time for these financial metrics This limited scope of analysis may impact the comprehensiveness of the financial evaluation and understanding of the company's performance trajectory.
Table 2.13: Table of analysis of rates related to fixed assets
During the audit planning phase, it was observed that ABC, a newly established enterprise since late 2017, has made reasonable investments in fixed assets necessary for its production of phone covers and electronic components The fixed assets constitute approximately 19% of total assets, aligning with industry characteristics, which supports the accuracy of the financial statements Despite being a new operation, ABC demonstrates efficient asset utilization, with a revenue-to-fixed-assets ratio of 2.67, indicating good performance Additionally, the fixed assets-to-equity ratio of 1.11 exceeds 1, reflecting that some assets were financed through external capital, such as loans from the parent company in South Korea, which is reasonable given the company's recent establishment and foreign investment nature.
2.2.7 Perform of Test of Details of Balances
Based on the preliminary analysis, auditors conduct a detailed inspection, which is a crucial step in the fixed assets audit process The primary goal of directly testing the balance is to gather sufficient audit evidence to verify the accuracy and reasonableness of the fixed assets' ending balance reflected in the financial statements Ensuring the correctness of the increase and decrease in fixed assets is essential for confirming the validity of the reported ending balance Specifically, the audit of account 211 - Tangible Fixed Assets, focuses on verifying the existence, valuation, and proper recording of physical assets to ensure financial statement accuracy.
A1 Check the existence of tangible fixed assets
Effective asset recording and reporting ensure data accuracy and reflect the true financial position Assisting leaders in accurately assessing both the quantity and quality of assets helps identify stagnant or underutilized assets, enabling targeted measures to improve capital efficiency Regular physical counts during accounting closures allow auditors to verify asset existence and prevent embezzlement or waste, thereby safeguarding asset integrity Involving auditors in the physical count process provides reliable audit evidence, strengthening asset management and reducing asset loss.
ABC Company was audited for the first time in 2018, and due to this being the initial audit, auditors were unable to participate in the physical count of fixed assets as of December 31 Instead, they collected fixed asset physical count minutes during the review of financial statements and compared these with the FA subsidiary ledger to identify and investigate any discrepancies Although the auditors matched the fixed asset records with the physical count results, they did not identify any differences or discrepancies during this process To ensure the fixed assets are legitimately owned by ABC Company, auditors also performed additional verification measures, such as cross-referencing vouchers and accounting books, to confirm the accuracy of the asset records.
- Bidding documents, bidding documents on investment in construction and purchasing of fixed assets of great value according to the provisions of law
- Minutes of contract liquidation, minutes of handing over of fixed assets of the seller to the company;
When auditing large-value assets such as VAT invoices, tax receipts, and insurance contracts for significant equipment, it is important to verify the source of the unit data provided and review the beginning balance Since the auditor does not participate directly in the physical count of fixed assets, a qualified opinion may be required in the audit report to reflect this limitation accurately.
To ensure an efficient and cost-effective audit process, auditors first verify the accuracy of the client's provided information and data before initiating any calculation procedures This preliminary step helps facilitate a purposeful audit and minimizes time consumption.
To ensure accurate financial reporting, prepare a comprehensive balance summary sheet that compares the current trial balance data with the previous year's audited financial statements, focusing on the beginning balances Additionally, cross-verify account 211 in the general ledger with the figures recorded during the period to ensure consistency, and compare the ending balances with this year's financial statements to identify any discrepancies or variances for thorough financial analysis.
The beginning balance: ABC Company is the first year audit since the establishment date so the beginning balance of fixed assets is zero.
Completing the Audit by Vietnam Auditing and Valuation Company Limited –
The process of completing the audit of fixed assets includes 2 main parts in the general audit process:
• Summing up misstatements and making adjusted entries
These will be grounds for the senior to summarize the audit results and exchange with customers
Before issuing audit reports and management letters, it is crucial for auditors to review their working papers thoroughly After completing all audit procedures, auditors evaluate the accuracy, completeness, and reasonableness of the evidence collected, supplementing any missing information promptly The main auditor, senior, and AVAHN's board members then review these working papers, with the senior consolidating the audit documentation from each cycle, requesting clarifications, or additional audit procedures if necessary This step ensures the overall quality and reliability of the audit findings.
The review must be carried out on the following aspects:
- Whether the audit process is carried out in accordance with AVAHN policy and audit standards;
- Whether the audit procedures meet the objectives of the audit;
- Whether the conclusions made are consistent with the audit process that has been carried out, whether the evidence obtained supports the opinion of the financial
Proper presentation of working papers is essential to ensure they are complete and appropriate for each step of the audit process It is important to verify that the collected evidence is sufficient and gathering additional evidence is necessary if gaps are identified Additionally, ensuring that the evidence obtained is consistent and reliable supports the overall quality and credibility of the audit.
- Whether the working papers are fully referenced or not.
The review of working papers for ABC Company's fixed asset cycle indicates that the audit process has been conducted thoroughly and effectively This comprehensive review provides a strong foundation for auditors to confidently form their audit conclusion Ensuring proper documentation and adherence to audit procedures, the process supports the overall reliability and accuracy of the audit results.
The company suggested adjustments to fixed asset entries to improve accuracy in recording During audits, it was observed that the company imported machinery, incurring transportation costs that should have been included in the historical cost of fixed assets These costs were initially recorded in account 241 and later transferred to account 211, which may lead to inaccuracies in historical cost documentation To ensure accurate financial reporting, the company needs to implement tighter control over this process This issue has been highlighted in the management letter, emphasizing the importance of precise fixed asset recording for compliance and audit readiness.
Summing up misstatements and making adjusted entries
After reviewing the auditors' working papers related to fixed assets, the senior accountant assesses the materiality level of the proposed adjusted entries and provides the final conclusion on their appropriateness and significance.
The senior auditor reviews and agrees with the adjusted entries related to the historical cost of fixed assets Upon completion of the audit cycles, they consolidate these adjustments to present to the Board of Directors and the chief accountant for approval The proposed adjustments to the historical cost are then officially approved by the Board and the chief accountant, ensuring alignment with auditing standards and accurate financial reporting.
The work performed for fixed asset items is conducted in accordance with the audit program (D730).
-Adjusted entries of historical costs:
The accountant has not yet transferred the cost of purchasing product plating machines (according to declaration 100344427260) to increase the historical cost of fixed assets.
- Adjusted entries of fixed assets depreciation
Kế toán tính toán và hạch toán thiếu chi phí khấu hao TSCĐ của máy mạ sản phẩm
The accountant calculated and accounted not enough for the fixed asset depreciation expense of the product plating machine
Data before auditing Adjusted Data after auditing
Comments of the Board of Directors of audited units
Auditors discussed with the chief accountant about the reasons for the difference as well as the direction of settlement, the chief accountant accepted the adjustment according to auditors 'opinion.
Events arising after the end of the annual accounting period
No significant event occurred from the end of the fiscal year requiring adjustments or explanations in the notes to financial statements.
The fixed asset item as of December 31, 2018 of ABC Company is truthfully and reasonably reflected in the material aspect
Table 2.23 :Excerpts from the WPs of the auditors – Audit conclusion
The article outlines ABC Company's comprehensive fixed asset and depreciation audit process, meticulously implemented by AVAHN It covers essential steps such as developing detailed audit plans, executing thorough on-site and documentation audits, and synthesizing the findings to ensure accuracy and compliance This structured approach guarantees transparency and reliability in asset management, aligning with best practices and SEO standards for auditing and fixed asset control.
Name of client: ABC Company Limited
Content: Summary of audit results