The process of auditing fixed assets in financial audit of asean

DM Deminimus MaterialityGAAP Generally Accepted Accounting Principles IAS International Accounting Standards IFA Intangible Fixed Assets IT Information Technology SEC Securities and Exch

TABLE OF CONTENT

TABLE OF CONTENT 1

ACKNOWLEDGEMENT Error! Bookmark not defined. LIST OF ABBREVIATIONS 6

LIST OF FIGURES, TABLES 7

INTRODUCTION 8

Rationale for the research 8

CHAPTER I 10

THEORETICAL FRAMEWORK ON AUDIT FIXED ASSETS IN FINANCIAL AUDITS BY AUDITING FIRMS 10

1.1 Features of Fixed assets cycle 10

1.1.1 Definition and classification of fixed assets 10

1.1.1.1 Classification of fixed assets 10

1.1.1.2 Features of fixed assets management 13

1.1.2 Accounting for fixed assets 14

1.1.3 Internal control over fixed assets in enterprises 21

1.2 Audit objectives in auditing fixed assets 26

1.2.1 Possible misstatements 26

1.2.2 Audit objectives 27

1.3 Sequence in auditing fixed assets in financial audits 28

1.3.1 Audit planning 28

1.3.1.1 Understand the client’s business and industry 29

1.3.1.2 Understanding internal control and assess control risk 31

1.3.1.3 Perform preliminary analytical procedures 31

1.3.1.4 Setting planning materiality 32

1.3.1.5 Developing an overall audit program 33

1.3.2 Audit implementation 33

1.3.2.1 Performing tests of controls in auditing fixed assets 33

1.3.2.2 Performing substantive tests in auditing fixed assets 35

1.3.3 Completing the audit 40

1.3.3.1 Reviewing of audit files and evaluation of misstatements 40

1.3.3.2 Final analytical procedures 41

1.3.3.3 Subsequent events and going concern procedures 42

1.3.3.5 Communicating with those charged with governance and issuing audit report ………43

CHAPTER II 45

PRACTICE OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY ASEAN 45

2.1 Clients of ASEAN and the necessity to audit fixed assets in financial audits 45

2.1.1 Nature of operations 45

2.1.2 Accounting policy 46

2.1.2.1 ABC Company Limited 46

2.1.2.2 XYZ Company 48

2.1.3 The necessity to audit fixed assets in financial audits 50

2.2 Sequence in auditing fixed assets in financial audits conducted by ASEAN 51

2.2.1 Audit planning 51

2.2.1.1 Preplan the audit 51

2.2.1.2 Audit planning 52

2.2.1.3 Performing preliminary analytical procedures 61

2.2.1.4 Setting materiality 62

2.2.1.4 Designing audit program 64

2.2.2 Audit implemention 68

2.2.2.1 Tests of control 68

2.2.3 Completing the audit 78

2.2.4 Comparison sequence in auditing fixed assets between ABC Company and XYZ Company conducted by ASEAN Limited 80

CHAPTER III 83

ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE AUDIT OF FIXED

ASSETS IN FINANCIAL AUDITS CONDUCTED BY ASEAN 83

3.1 Assessments on audit of fixed assets in financial audits conducted by ASEAN 83 3.1.1 Strengths 83

3.1.1.1 Audit methodology and audit tools 83

3.1.1.2 Audit process 83

3.1.2 Weaknesses 87

3.1.3 Causes 90

3.2 Recommendations and solutions to improve the process of auditing fixed assets in financial audit at ASEAN 91

CONCLUSION 96

LIST OF REFERENCES 98

STATUTORY DECLARATION

I herewith formally declare that I have written the submitted Bachelor Thesis independently I did not use any outside support except for the quoted literature, and other sources mentioned at the end of this paper.

I marked and separately listed all the literature and all other sources which I employed in producing this academic work, either literally or in content.

Hanoi, April 21, 2018

Pham Hoang Nhat

First and foremost, I would like to thank Master Trinh Tu Ky, the director of ASEAN Limited Company, for giving me the opportunity to intern in the company for two months For me, it helped me to understand much more about essential mindsets, and requirements to become a professional auditor, and to have a determined plan for my future career in this area.

Equally important, I hope to send my kindest thanks to Mr Trinh Quoc Huy, my “on-job” instructor at ASEAN Limited He shared my experiences, advice, and enthusiastic in not only works but also life Also, the friendliness and kindness of all team members, with whom I did the fieldwork, as well as people that worked in the office of ASEAN Limited, I have experienced great things on both works and friendship.

Finally, I would like to express my sincerest gratitude to Master Ha Hong Hanh, my respectable teacher in the School of Accounting and Auditing at National Economics University With her enthusiastic, patience, and extreme care, I have been motivated a lot to complete this report.

DM Deminimus Materiality

GAAP Generally Accepted Accounting Principles

IAS International Accounting Standards

IFA Intangible Fixed Assets

IT Information Technology

SEC Securities and Exchange Commission

TE Tolerable Error

TFA Tangible Fixed Assets

VAS Vietnamese Accounting Standards

VSA Vietnamese Standards on Auditing

WPS (wps) Working Paper

LIST OF FIGURES, TABLES

Table 1-1: Document related to fixed asset transactions 15

Figure 1-2 Results of Tests of Controls Error! Bookmark not defined. Table 1-3 Management Assertions and Substantive Procedures for Fixed Assets 35

Figure 2-1 Purchasing fixed assets process of the firm 59

Figure 2-2 Preliminary Analytical Procedures at ABC 61

Figure 2-3 Preliminary Analytical Procedures at XYZ 62

Table 2-4 Set materiality of ABC 63

Table 2-5 Set materiality of XYZ 63

Table 2-6 Procedures of Auditing Fixed Assets in Voyager 64

Figure 2-7 WP TFA00: Fixed Assets Memo 69

Figure 2-8 WP TFA01: Fixed Assets Schedule 71

Figure 2-9 WP TFA02: Fixed Assets Addition 72

Figure 2-10 WP TFA 07: Construction in progress 74

Figure 2-11 WP IFA05: Intangible Fixed Assets 76

Figure 2-12 WP TFA09: Cut-off Test 78

INTRODUCTIONRationale for the research

In the development of market economies, auditing activity is one of the mostcrucial parts of business operations and enhancing management quality process ofenterprises Business operations and financial situations of companies are greatconcern of not only authorities, domestic and foreign investors, employers, clients butalso owners of corporations Although the purpose of each object is different but theyhave one similarity: comprehend financial circumstance, reality capacity in businessoperation of enterprises Relying on auditing results, financial statement users have asubjective point of view which leads to right judgment of business entities results andmaking judicious decisions Throughout audit, audit firms have delegation to give trueand fair opinion on financial situation of clients Due to this, enhancing quality ofsupplied services and professional reputation, increasing the competitive with otheraudit firms are missions given for the audit company

Fixed asset is basis of matter, is the crucial factor of companies particularly for theproduction units It reflects the existing production capacity and the level of scientific andtechnical applications in operations of enterprises Therefore, requirement of managementand efficient use of fixed assets is always a top priority goal for enterprises, especiallymanufacturing companies Fixed asset always contains the risk of material influences tothe information on the financial statements It is required that auditors need to have fullunderstanding about the nature of business operation in general and fixed assets in detailfor specific enterprises

Based on theoretical knowledge had studied at National Economic universityand practical experiences gathered at the internship period, I have been aware of the

importance of fixed assets and decide to select and study the topic: “The process of auditing fixed assets in financial audit of ASEAN”

Objectives of the research

The first objective of the essay is to summarize and generalize theoreticalframework on audit of fixed assets in the financial audit

The next is to clarify the practice of audit process of fixed assets in Ltd.ASEAN

On this basis, the thesis provides proposals and recommendations to improvethe audit of fixed assets in financial audit performed by ASEAN.

Methods of research

Secondary data: With scientific research method, along with the knowledgefrom the university I have been equipped with the knowledge incorporated in theactual practice Basing on the working papers, audit files and undertaken audit work, Iconsider and learn about the application of audit procedures to audit fixed assets inauditing financial statements in the company

Primary data: I used some common research techniques including comparingand contrast, assessing and evaluating, summarizing information and suggestingrecommendations

Due to my limited knowledge and experiences in ASEAN’s auditing system,this report cannot avoid errors and shortcomings Thus, I am extremely lookingforward to receiving distribution advices from teachers to complete the internshipreport and collect precious knowledge in this segment

The content of my report consists of three chapters:

Chapter I: Theoretical framework on audit of fixed assets in financial audits by

auditing firms

Chapter II: Practice of audit of fixed assets in financial audits conducted by

ASEAN

Chapter III: Assessments and recommendations to improve audit of fixed

assets in financial audits conducted by ASEAN

CHAPTER I THEORETICAL FRAMEWORK ON AUDIT FIXED ASSETS IN

FINANCIAL AUDITS BY AUDITING FIRMS1.1 Features of Fixed assets cycle

1.1.1 Definition and classification of fixed assets

Fixed assets are the assets of the business in physical forms or non- physicalforms but their value can be determined and they are satisfied the recognition criteria

of fixed assets These assets should have preservation and separate management to useeffectively and there are plans to renovate when properties are out of useful life

1.1.1.1 Classification of fixed assets

Fixed assets can be classified in several ways based on different criteria suchas:

- According to the forms of fixed assets, fixed assets are divided into:Tangible fixed assets and intangible fixed assets

- According to the source of formation, fixed assets are divided into: Fixedassets are purchased, built with capital from State funds, fixed assets arepurchased, built with capital from loans, fixed assets are purchased, builtwith additional equity, fixed assets are received from joint ventures,associated with other units

- According to the function and the condition: Fixed assets are used inproduction and business, unused fixed assets, fixed assets are pending,fixed assets are used for welfare, career, national defense and securitypurposes, company is preserving and keeping fixed assets for other units

- According to types of ownership, fixed assets are divided into: Fixed assetsbelong to unit, outsourcing fixed assets: Fixed assets of financing lease,fixed asset of operating lease

According to Accounting Standard No 03 - Tangible fixed assets, Standard No

04 Intangible Assets issued by Decision No 149/2001 / QDBTC, Standard No 06 Fixed assets of financial leasing issued by Decision No 165/2002 / QD-BTC andCircular 45/2013/TT-BTC, the fixed assets of enterprises including:

-Tangible fixed assets: are means of labor primarily in the physical forms and

satisfy the criteria of tangible fixed assets, involved in many business cycle but remainoriginal physical forms as buildings, structures, machinery, equipment, means oftransportation, etc

Means of labor are the tangible assets with independent structure, or a system ofmany individual parts of assets linked to perform one or a certain number of functionsand without any part, the system cannot work, and if meet the following three criteriathey shall be regarded as fixed assets:

 It is certain to gain economic benefit in the future from the use of such asset;

 The valuation of assets must be measured reliably;

 Having the utilization time of over 01 year;

 Primary price of assets must be determined reliably, and is valued at 30,000,000(thirty million) dong or more

In case a system includes many individual components of assets linkedtogether, in which each component has different utilization time and without anycomponent the entire system still perform its main operating function its main activitybut due to requirements on management and use of fixed asset requiring separatelymanaged asset division, each asset division if simultaneously satisfying three criteria

of fixed assets shall be regarded as independent tangible fixed assets

For animals working and/or giving products, then each of the animalssimultaneously satisfying three criteria of fixed assets is regarded as tangible fixed

For perennial orchards, each piece of garden or trees simultaneously satisfyingthree criteria shall be regarded as a fixed tangible asset

Intangible fixed assets: these assets are not physical forms, represents a value

of the investment has to satisfy the criteria of an intangible asset, involved in manybusiness cycles such as some costs directly related to land use; issuance right, patent,copyright, etc

All actual costs spent by enterprises simultaneously satisfying all three criteriaspecified in the preceding part, without forming tangible fixed assets are regarded asintangible assets

As for costs incurred in the implementation phase recognized as intangibleassets generated from the inside of enterprise if they simultaneously satisfy thefollowing seven conditions:

 Technical feasibility ensures the completion and put the intangible assets to the

expected use or sale;

 Enterprises intend to complete the intangible asset for use or sale;

 Enterprises have the ability to use or sell these intangible assets;

 These Intangible assets have to generate economic benefits in the future;

 Having sufficient technical and financial resources and other resources to

complete stages of deployment, sale or use of those intangible assets

 Being able to identify with certainty the full cost of the deployment phase to

create such intangible assets;

 It is estimated to have adequate standards on utilization time and value defined

for intangible fixed assets

Fixed assets of financial leasing: are the assets which enterprises lease from

financial leasing companies At the end of the lease term, the lessee has the right topurchase the leased property or continues the lease under the terms agreed in the leasecontract The total rent of an asset type specified in the financial leasing contract must

be at least equal to the value of that asset at the time of contract signing

All leased assets if not meeting the above-mentioned regulations are considered

as the operating leased fixed assets

Below are the examples of cases that normally lead to financial leases:

 The lessor transfers the asset’s ownership to the lessee at the end of the lease

term;

 At the inception of the lease, the lessee has the right to purchase the leased asset

at a price expected to be lower than the reasonable price at the end of the leaseterm;

 The lease term accounts for most of the economic life of the asset even if the

ownership is not transferred;

 At the inception of the lease, the present value of the minimum lease payment

accounts for most of the reasonable value of the leased asset;

 The leased asset is of a special-use type which can be used only by the lessee

without major modification or overhaul

Fixed assets item is one of the critical factors to conduct business activities in

an enterprise It has an important impact on the growth of enterprises throughincreasing productivity, reducing costs of products, increasing the competitiveness ofenterprises At almost audit firms, fixed assets item is a significant account of anyengagements, so the auditors are required to understand the nature of the concept aswell as the classification and the main procedures involved to this item

1.1.1.2 Features of fixed assets management

a) In term of principles of fixed assets management

Fixed assets are crucial facilities which enable enterprises achieve the goal ofmanufacturing operations and financial, subsequent to which objective for eachcompany is enhance the management of fixed assets to obtain high efficiency

Moreover, in manufacturing operations and business process, fixed assetsremain their original physical form but its value decreased gradually after eachbusiness cycle, the result for which, enterprise should manage both the physical formand value of fixed assets

According to Article 5, Circular No.45/2013/TT-BTC regulates aboutmanagement of fixed assets:

All fixed assets in the enterprise must have separate document package(including hand - over minutes, contracts, invoices, vouchers and other relevantdocuments) Each asset must be classified, numbered and has its own card that ismonitored for each item of fixed assets and is presented in the fixed assets register

Each of fixed assets is managed individually based on historical cost,accumulated depreciation and carrying value on accounting books:

Fixed assets are no longer in use, awaiting for disposal but do not depreciatefully, enterprise has to conduct managing, supervising and preserving in accordancewith current regulations and depreciation as prescribed in this Circular

Carrying value = Historical cost – accumulated depreciation

Enterprises have to conduct the management over the fixed assets that havebeen fully depreciated but still participating in business activities as normal fixedassets.

b) In term of implementation of fixed assets management

In management, fixed assets need to be supervised about both their artifacts andvalues

Manage about artifacts is the supervision of both quantity and quality of fixedassets

About quantity: The management of fixed assets department makes certain tosupply sufficient capacity for manufacturing operation of company

About quality: Preservation has to guarantee the fixed assets, prevent the fixedassets from destruction or broken, which leads to the reduction of value

Supervise about values means that determining historical cost, accumulateddepreciation and remaining value accurately Manage value of fixed assets is the majorresponsibility in accounting work This work ensures management can appreciateinformation about value (historical cost, accumulated depreciation, remaining value)

of each categorized of fixed assets (tangible fixed assets, intangible fixed assets,financial lease fixed assets) correctly, timely and unreservedly

1.1.2 Accounting for fixed assets

Due to the importance of the fixed assets in the business operations, the process

of acquisition, use, depreciation and disposal of fixed assets should be controlledstrictly and scientifically to create maximum benefits for businesses The identification

of the risks that may occur during each step of this process not only helps businesses toimprove, enhance internal control system, but also helps auditors to focus on theactivities contain a lot of risks that have material effect on financial statements

1.1.2.1Documents used in Accounting of Fixed assets.

Table 1-1: Document related to fixed asset transactions

Transactions Documents

Addition of fixed assets Purchase order, VAT invoice, hand-over

minutes, minutes of valuation, minutes ofinspection…,

Maintenance and upgrade of fixed

assets

Maintenance and upgrade contract,Invoice, minutes of inspection, hand-overminutes of major repair of fixed assets…,Depreciation of fixed assets Fixed assets register

Disposal of fixed assets Disposal of fixed assets contract, minutes

of disposal, hand-over minutes, VATinvoice…,

1.1.2.2Accounting for fixed assets

 Accounts system of fixed assets: According Circular No.200/2014/TT-BTC,accounting for fixed assets uses following accounts:

Acc 211 - Tangible fixed assets, this account is used to reflect historical cost ofthe existing tangible fixed assets under the business's ownership, increase and decrease

of tangible assets during the period

Acc 2111 – Buildings and structures, this account reflects the fixed assetswere formed after the construction process as office buildings, warehouses, fences,water towers, ports, roads, bridges for business's operations

Acc 2112 - Machinery and equipment, this account reflects all machinesand equipments that are used for production and business activities such as specializedmachines and equipments; production lines, dynamical equipments

Acc 2113 - Transportation & transmit instrument, this account reflects thekind of transports of railway, road, air and the equiments of transmissions such aselectric, water, conveyor systems

Acc 2114 - Instruments & tools for management, this account reflectsdevices and instruments for management as electronic devices, computers, faxs

Acc 2115 - Long term trees, working & killed animals, this account reflectsthe kind of long-term trees (tea, rubber, coffee ), working animals (buffalos, cows,horses ) and animals create products (buffalos, milk cows )

Acc 2118 - Other fixed assets, this account reflects the fixed assets are notreflected in the above categories as fixed assets are no longer in use and have not usedyet; fixed assets are awaiting for liquidation or sale; the artworks, professional books,pictures

Acc 212 - Finance lease fixed assets; this account is used to reflect the entire oforiginal cost of finance lease fixed assets, fluctuation (increase or decrease) in theperiod This account is opened in details for each fixed assets business rents and foreach units lease

Acc 2121 - Finance lease tangible fixed assets

Acc 2122- Finance lease intangible fixed assets

Acc 213 - Intangible assets; this account is used to monitor the existingcondition, fluctuation (increase or decrease) of cost of intangible fixed assets

Acc 2131 - Land use rights, this account reflects the expenses incurreddirectly to obtain land use rights as costs of compensation and site preparation, forpurchase of land use right, the register fee (if any)

Acc 2132 – Copyrights, this account reflects the actual cost that the unithas spent to have copyrights

Acc 2133 - Patents and inventions, this account reflects the full cost thatthe units have been spent to repurchase the copyrights, patents of the inventors or thecost of which the unit must pay for the project of trial research is issued license ofinvention by the State

Acc 2134 – Trademarks, this account reflects entire cost that unit spent tobuy trademark

Acc 2135 – Software, this account reflects entire cost that unit has to payfor software

Acc 2136 - License and concession license, this account reflects entire thecost that businesses spent to get the license and concession license (exploitationpermits, production licenses )

Acc 2138 - Other intangible fixed assets, this account reflects the value(including all costs that businesses spent) of the other fixed assets are not listed above

as contractual use rights, technological know-how, formulations, industrial designs

Acc 214 - Accumulated depreciation and amortization

Acc 2141 - Tangible fixed assets depreciation

Acc 2142 - Finance lease fixed assets depreciation

Acc 2143 - Intangible fixed assets depreciation

Acc 2147 - Investment real estate depreciation

Acc 241 - Construction in progress;

Acc 2411 - Fixed assets purchases

Acc 2412 – Capital construction

Acc 2413 - Major repairs of fixed assets

Besides the above major accounts, in the process of accounting, accountantsalso use other related accounts as account; Acc 217 - Investment real estate; Acc 331

- Payable to sellers; Acc 342 - Long-term liabilities; Acc 111 - Cash, Acc 112 - Cash

in bank

1.1.2.3 Accounting methods

Accounting for increase of tangible assets, intangible assets

Today, enterprises have many cases for increase of fixed assets, such asconstructions of factories, purchases of machinery, equipment and contribution capital

in fixed assets from others units, fixed assets are donated … Each case increase offixed assets are reflected fully and timely on the basis of documents such as invoices

of purchasing fixed assets, cost of installation, running test and other relateddocuments

Accounting for reduction of tangible assets, intangible assets

Tangible fixed assets, intangible assets of the business decrease due to manydifferent causes, such as the resale, liquidation, loss, discovered missing when conductphysical count, are contributed to the joint venture, transferring to another unit Anycase, reduction of FA must be performed procedures fully to identify losses, expenseand income (if any) and, depending on the specific case for accountant recording to

The sequence of accounting for increase or decrease fixed assets is shown in thediagram below:

(1a) Purchases of fixed assets

(1b) VAT payable when purchasing FA

(2) Fixed assets are donated, granted or contributed capital

(3) FA are transferred from CIP

(4) Get back fixed assets of short - term or long - term joint venture, finance lease offixed assets

(5) Finance lease assets transferred into the own fixed assets

(6) Contribute to joint ventures in fixed assets

(7) Finance lease of fixed assets

(8) Disposal of fixed assets

(9) Shortage of assets awaiting resolution

Diagram 1-2 : Accounting of increase and decrease fixed assets

Accounting for depreciation of fixed assets

Accounting for depreciation and amortization of fixed assets is reflectedsimultaneously on Account "214" - depreciation of fixed assets and is reflected in thefollowing diagram:

(1) Depreciated

(3) Decrease of fixed assets that are depreciated

Diagram 1-3: Accounting for depreciation of fixed assets

1.1.2.4 Presenting fixed assets financial information on financial statements

Circular 200/2014/TT-BTC guides specifically about the setting andpresentation of items of fixed assets on financial statement of position Accordingly,fixed asset (Code 220) is general norm that reflects the carrying value (Cost lessaccumulated depreciation) of kinds of fixed asset at the time of report Code 220 =Code221 + Code 224 + Code 227 In particular, the codes 221, 224 and 227respectively of tangible fixed assets, finance lease of fixed assets and intangible fixesassets

Besides the basic information about fixed assets mentioned above, changes inthe regulations of the State on the management, use and depreciation of fixed assets inCircular 45/2013/TT-BTC with effect from June 10, 2013 should be detailed in thefinancial statements, particularly for financial statements issued in 2013, the yeareffected directly by the changes in applicable laws Accordingly, assets with value

under VND 30,000,000 were recorded as fixed assets will be transferred to accountTools and supplies from June 10, 2013, the effective date of Circular 45 with themaximum of three years allocation from the date of reclassification of such asset.

1.1.3 Internal control over fixed assets in enterprises

Internal control over fixed assets ensures that fixed assets are recorded correctlywith its initial cost and the use, depreciation must be recorded with proper methods.Internal control of fixed assets is established and implemented by the enterprises Thepolicies, steps and procedures of control for fixed assets are in order to achieve theobjectives of internal control of fixed assets Internal control of fixed assets in thebusiness including the following works:

• Identifying demand of investment and make investment decisions for fixedassets: Fixed assets are important assets which reflect existing production capacity,scientific and technical qualification of the businesses They decide the possibility ofsustainable development and the ability to implement the objectives in term offinancial operations of enterprises Therefore, this is the most significant stage forthese transactions A wrong investment decision will have significant impact on theoperation of unit in a long time;

• Organizing the reception of fixed assets: After the investment decisions havebeen approved, the next stage is organizing the reception of fixed assets The mostimportant objective of this stage is to ensure that the unit receives the fixed assets inaccordance with requirements in the investment process, have technical, qualitystandards and these fixed assets are transferred correctly to departments which haveneeds of using, ensure exploiting completely the existing capacity of the fixed assets;

• Organizing the management and preservation of fixed assets in term of theartifacts in during useful life: It has important meaning due to the fixed assets havelong useful life The management of fixed assets must be ensured both in quantity andquality Fixed assets must always be ensured sufficient quantity, to avoid the damages

or losses and to promote existing capacity The damaged fixed assets need to bedetected immediately and there are solutions to fix and repair timely To do so, theunits have to set the rules for use and management of fixed assets in scientific way andmake the plans of use, depreciation, and repair of fixed assets consistent with the

actual conditions It is necessary to set economic and technical norms of using fixedassets.

• Organizing the management and recognition in terms of value: Theidentification and record for fixed assets have an important impact on the financialstatements, to the information related to these properties In terms of value, fixedassets must be monitored closely about their cost, depreciation and carrying value Inthe management process, units need monitor closely increase, reduction in the value offixed assets when they are repaired, upgraded, dismantled of detail parts, improvedand revaluated The application of depreciation policy for objects is also an importantaim of this control step;

• Organizing to record the liabilities incurred in the investment process,purchases of fixed assets: Handling and recording the costs that pay for purchasing,investing of fixed assets, organizing to review, approve and handle disposal, resaletransactions of fixed assets;

To carry out steps of work of transactions about fixed assets well, internalcontrol system of units is established in compliance with the following basicprinciples:

Control activities

• Segregation of duties: This principle requires the separation of the

management and use of fixed assets with accounting of fixed assets, separation ofusing management department with department that have decisions and approvals offixed assets transactions, separation of sellers, buyers of fixed assets with departmentsthat use or accounting for fixed assets

• Authorization controls: The unit must have clear regulations on the

jurisdiction of each level for ratification, management and use of fixed assets

 Physical controls

The goal of physical controls is to verify existence, condition and custody of therespective asset Due to the difficulty in stealing an asset as land, building or heavyequipment, they were considered low risk However, the pieces of equipment that aremore likely to be stolen or misappropriated and they include vehicles, trailers andtools These types of fixed assets require more physical control to ensure proper use. For most small business, the final group of assets is the more common value found on

the balance sheet – office equipment These fixed assets are the easiest to steal ormisappropriate and therefore more scrutiny over them should be exercised by themanagement team The best tool for this type of equipment is an assignment statementwhereby a particular asset is assigned to an employee and this employee’sacknowledges responsibility by signing a statement.  The term used in accounting is

‘Custody’ over the equipment It is one thing to verify existence which is the easiest ofthe physical controls to implement it is another to have actual control over the asset. 

As small businesses grow, often the physical assets are used by employees for personalpurposes.  The best examples are the vehicles and technology equipment The goal ofaccounting is to separate the associated costs for the personal use and the business usefor tax purposes For vehicles there are several different physical controls that one canimplement to prevent misappropriation: GPS monitoring, vehicles are stored at the sitepremises at night, key logs, selective assignment of vehicles to certain employees.Similar controls can be used for computer equipment and expensive mobileequipment.  All of these physical controls help to establish custody over the assets

The final area of physical control addresses conditions of the assets to prevent

or properly control the asset value related to damage The absolute best physicalcontrol for this is custody of the asset.  When the asset is assigned or checked out, theasset’s condition is assessed and the employee is expected to bring the asset back inthe same condition except for typical wear and tear. 

Another physical control to identify damage is periodic inspection of the assets

by someone independent in relationship to the assets.  Have somebody from the partsdepartment inspect the physical assets for the service department and so on.  Actuallythe accountant can simply have a pattern of inspection to confirm existence andcondition of the physical assets of the company

 Independent Checks on Performance: The last category of control activities

is the careful and continuous review of the other four The need for independentchecks arises because internal controls tend to change over time, unless there isfrequent review Personnel are likely to forget or intentionally fail to followprocedures, or they may become carefulness unless someone observes and evaluatestheir performance For example, procedure of putting tag for each of fixed assets is

purpose or personal use Personnel responsible for performing internal verificationprocedures must be independent of those originally responsible for preparing the data.Company can have annually examination of a council that includes members who arenot in using department of fixed asset or management department of fixed asset Theywill check procedures that are performed for fixed assets such as tag is putted for allassets.

Financial controls

The goal of financial controls is to ensure that the fixed asset value as reported

on the balance sheet is accurate The two drivers of the value as reported on thebalance sheet for fixed assets are the initial acquisition cost and the depreciationmethod used If acquisition cost is improperly recorded the value as reported will beaffected The easiest tool to manage this particular issue is a policy stating howacquisition cost is calculated In general accountants use the initial purchase price,modification costs, delivery, installation and testing as the value for acquisition Thebest financial control is a policy that defines acquisition cost for most of the typicalassets this type of business will purchase This is then used by the accounting staff torecord the purchase appropriately In addition to defining the acquisition cost thereshould also be a policy that defines ‘WHO’ determines the expenditure of funds for theasset Basically the policy should limit the decision model to the owners for smalleroperations and to some form of a committee or a method of requesting the funding of

an asset for capital expenditures.Company should choose a method of depreciationthat most closely resembles the expected value adjustment for the particular asset Ifcompany selects a method that decreases the value to quickly the financial statementwill display a lower value for the fixed assets, too little and the fixed assets may beoverstated in value The key is to be reasonable in company’s selection for therespective method of depreciation for the respective asset Remember there may be amethod for each respective fixed asset on the balance sheet or for a similar group ofassets Once the asset is recorded to the books now a depreciation method needs to beassigned to the respective asset

There are other financial controls but these have less impact on the value asrecorded on the financial statements The following are the basic set of financialcontrols:

Do the owners initiate and/or approve of requests for fixed asset purchases?

Is there a policy in place that sets the requirements for capitalization of an asset,i.e minimum dollar amount and life expectancy?

Is there a policy and a corresponding set of procedures to follow to determinethe depreciation formula and the frequency of journal entries related to depreciation?

Is there an inventory conducted of all fixed assets (see physical controls above)

on a maximum of an annual basis?

Are disposals of assets approved by management and then properly recorded tothe books of record?

Are fixed asset ledgers reviewed regularly to confirm segregation of non-fixedasset purchases to the fixed assets account? The most common error is construction inprocess expenses being recorded to the fixed assets account

Responsibility of establishment and operation of the internal control system forfixed assets belongs to enterprises In conducting audit of fixed assets, auditors needpresent about internal control to assess control risks and determine the volume of auditwork to be done The content of this work is presented in the audit process of fixedasset items below

1.2 Audit objectives in auditing fixed assets

1.2.1 Possible misstatements

The auditor often performs analysis of risks to reliable financial reporting andincludes an analysis of controls to solve those risks The substantive tests of theaccount balances focuses on material transactions impacting the account balanceduring the year such as additions, disposals, and write-off existing assets and therecognition of periodic depreciation of the assets

If the client has relative strengths in internal controls, it will impactsignificantly on the audit of fixed assets The weakness in the control environments led

to management override of existing controls and ultimately to the ability to commitlarge frauds For fixed asset items, clients tend to have possible misstatements ofoverstatement the value of fixed assets balances

The common misstatements that often happen for fixed assets:

Frauds

- Creating fake invoices, repair documents to record over purchase price, repair costs

of fixed assets to embezzle;

- Misstatements in the implementation of the approval, procurement procedures offixed assets, such as approving purchase of fixed assets beyond jurisdiction, do notorganize the bidding or competitive offer for the assets required by regulations,implementing wrong procedures in tendering;

- Intentionally not record the proceeds from the disposals of fixed assets to appropriatethis proceed;

- Intentionally depreciate assets that are not eligible, do not classify fixed assets inaccordance with regulations, intentionally apply unsuitable depreciation methods forillicit profits

Errors

- Forgot to record transactions that have to be recorded in accounting books Forexample, enterprise buys a modern computer that can operate independently with anaccompany management software to support business management Accountant hasrecorded increase of the cost of tangible fixed asset but forgot to record increase ofintangible assets - management software;

- Recording increase of prepaid instead of increase of intangible fixed assets ( ascopyrights, patents and inventions .) or recording prepaid expenses such costsincurred prior to the establishment of enterprises, the cost of the study period, ) intointangible assets;

- Confusion between major repairs and upgrades of fixed assets led to misstatement in accounting;

- Incorrect depreciation of welfare assets to business activities;

- Errors due to duplicate records, errors in posting, transfer of accounting books,

Some new auditors think that the fixed asset cycle is simple and audit it justincluding mechanical works such as recalculation of depreciation, tracing amounts toaccumulated depreciation, testing fixed asset additions and vouching them That may

be the case in some organizations However, as with all other aspects of the audit, theauditor need understand the client’s business strategy, current economic conditions,and potential changes in the economic value of the assets Auditors can make seriousmistakes if they always assess fixed assets cycle as a low-risk audit area

1.2.2 Audit objectives

In the fixed asset audit, auditors have to obtain sufficient and appropriate auditevidences to verify assertions in the entry transactions and calculation, aggregation offigures, presentation of financial information related to fixed assets on the financialstatements On this basis, the specific objectives of the fixed asset audit are outlined asfollows:

For groups of transactions and events during the audited period related to fixedassets:

* The occurrence: All transactions and events that have been recorded have occurredand pertain to the entity

* Completeness: All transactions that are incurred in the period are reflected andmonitor sufficiently on the accounting books;

* Accuracy: Amounts and other data relating to recorded transactions and events havebeen recorded appropriately

* Classification: transactions and events have been recorded in the proper accountsaccording to related regulations;

* Posting and summarization: recorded transactions are properly included in theMaster Files and are correctly summarized This objective deals with the accuracy ofthe transfer of information from recorded transactions in journals to subsidiary recordsand the general ledger It is part of the accuracy assertion for classes of transactions.

* Timing: transactions are recorded on the correct dates A timing error occurs if atransaction is not recorded on the day it took place

Identify assertions about fixed assets account balances:

* Existence: all fixed assets that are presented in the financial statements by the entityactual exist at the time of report;

* The rights and obligations: The entity holds or controls the rights to assets, financeleases of fixed assets belong to rights of long- term control of the enterprise on thebasis of signed lease contracts

* Valuation and allocation: fixed asset account balances are evaluated in accordancewith the regulations and adjustments related to the assessment or allocation that hasbeen recognized properly

* Completeness: all fixed assets have been sufficiently recorded

Verify assertions on the presentation and disclosures

* Occurrence, rights and obligations: disclosed events and transactions have occurredand pertain to the entity;

* Completeness: all disclosures of fixed assets that should have included in thefinancial statements have been included

* Classification and understandability: fixed assets are classified correctly forpresentation on the financial statements, the description and explanation of fixed assets

is reasonable, clear, easy to understand;

* Accuracy and valuation: financial and other information are disclosed appropriatelyand at appropriate amount

1.3 Sequence in auditing fixed assets in financial audits

Generally, audit process of fixed assets includes three steps: audit planning the audit; audit implementation; and completing the audit

1.3.1 Audit planning

Audit planning is the first stage that auditors need carry out to create legalconditions and other necessary conditions in every audit It is regulated clearly in

current Auditing Standards as the first generally accepted auditing standard of field

work (GAAS) requires adequate planning: “The auditor must adequately plan the work and must properly supervise any assistants”.

Audit planning includes a number of the following main procedures:

The initial procedures of the audit: accept client, determine objectives andscopes of the audit, select staffs for the audit, sign the contract, gather information andthe most important is to design a specific audit program The content and scope of theaudit planning may be different depends on audited company's scale and complication

as well as previous experience of the audit team for that unit, and changes arisingduring audit For fixed asset items, content of audit planning usually includes:gathering initial information about the business, fixed assets

1.3.1.1 Understand the client’s business and industry

A comprehensive understanding of the client’s business and industry andknowledge about the company’s activities are essential for the auditor to conduct anadequate audit According the second standard of field work: “The auditor must obtain

a sufficient understanding of the entity and its environment, including its internalcontrol, to assess the risk of material misstatement of the financial statements whetherdue to error or fraud, and to design the nature, timing, and extent of further auditprocedures.”

Learning about the client and its environment, including internal control system

is the process of gathering, updating and analyzing information continually during theaudit The information need to be collected includes:

First, learning about the external factors affecting the operation of the enterpriseincluding:

+ The problems in the industry and growing trend: the competitiveenvironment, suppliers, customer relationships, the development of producttechnology related products and services which business provide

+ The business environment which client is operating in

+ Legal environment: laws, policies and regulations relating to the operation ofclient as accounting policy, the legal framework related activities supervised by therelevant authorities, policy tax, exchange rate controls, limits on trade

+ Other external factors such as general economic conditions, the volatility ofinterest rates, inflation

Second, concentrating on study of the internal factors affecting the operation ofthe enterprise include:

- Business activities:

+ Type of business such as manufacturing, trade or service enterprise affecting

to characteristics, the proportion of fixed assets and related risks affecting the financialstatements

+ The nature of the resource of revenue from products, services, the marketincluding e-commerce as sales over the Internet, the marketing activities of thecompany to learn the events, the transactions which impact on fixed assets inparticular and financial reporting in general

+ The way of management on operations such as objectives, strategies ormethods of production or operations related to business risks affecting investmentplans on fixed assets in the future

+ Investment activities, capital contributions, associates of business Considerthese activities relate to the size, structure and fluctuations of fixed assets

+ The geographic dispersion, location of factories, offices, warehouses affectthe management of fixed assets

+ These important customers, primary suppliers, personnel policies

+ The activities of research and development

+ Transactions with related parties

- The organizational structure of management and ownership forms such asknow about the shareholders and investors; specific management methods; attitudes,the attention of managers related to internal control

In addition, auditor also learns about the key personnel of client and otheradministrative issues.

Auditor may collect the above information by the procedures as reviewdocument of previous audit to find out important information related to the financialpolicies, the misstatements related to fixed asset items ; facility tours to observedirectly the use of fixed assets in the client; collect legal documents, books andoperation plan; or communicate directly with the board of directors, chief accountantand accountant of fixed assets and other staffs in the unit on the use, management offixed assets

1.3.1.2 Understanding internal control and assess control risk

From requirements for management and efficient using of fixed assets,businesses need to build an internal control system that can use fixed assets in optimalway The internal control system is regarded as an effective tool which is shownthrough the protection and proper management of fixed assets The understandingabout internal control system has enormous meaning in audit planning, as a basis tohelp auditor determine the scope, volume and content of the audit works will need to

be implemented in the enterprise The more effective internal control system, thesmaller the risk control, the higher the materiality is set Thus the volume ofprocedures, the audit works are reduced and vice versa, the weaker internal controlsystem, the higher control risk, the lower materiality level is set and require more auditprocedures to detect the frauds and risks influence the information presented in thefinancial statements

1.3.1.3 Perform preliminary analytical procedures

Auditors perform preliminary analytical procedures to better understand theclient’s business risk One such procedure compares client ratios to industry orcompetitor benchmarks to provide an indication of the company’s performance Suchpreliminary tests can reveal unusual changes in ratios compared to prior years, or toindustry averages, and help the auditor identify areas with increased risk ofmisstatements that require further attention during the audit

There are two basic analytical procedures that auditor often applies for fixedassets: vertical analysis (Ratio analysis)

 Perform an overall estimate of depreciation expense

 Compare capital expenditures with the client’s capital budget

And horizontal analysis (trend analysis)

 Compare depreciable lives for various asset categories with those of theindustry

 Compare the asset and related expense account balances in the current period

to similar items in the prior audit

Ratios that the auditor should plan to review:

 Ratio of depreciation expense to total depreciable tangible assets

 Ratio of repairs and maintenance expense to total depreciable tangible assets

 Ratio analysis should involve comparison of the unaudited financialstatements with both past results and industry trends

If preliminary analytical procedures do not identify any unexpectedrelationships, auditor would conclude that there is not a heightened risk of materialmisstatements in these accounts If unusual or unexpected relationships exist inpreliminary analytical procedures, planned audit procedures would be adjusted toaddress the potential material misstatements

1.3.1.4 Setting planning materiality

According to the Vietnam Auditing Standards No 320, the materiality is theconcept of magnitude (or scale) and the nature of the misstatements (includingomission) of the accounting information that in the light of surrounding circumstances,

it will be incorrect or make wrong conclusion if based on these information tojudgment Senior in-charge is responsible for implementing to assess materiality bycollecting figures and calculating, and then partner will make final decision

Auditor need to identify:

The level of materiality: this is level of materiality for the entire financial

statements, the threshold at which the sum of the gross misstatement of all items in thefinancial statements must not exceed Materiality can be determined based on thepercentage of an appropriate indicator depend on characteristics of each business such

as total revenue in the year (commonly with production enterprises), equity (with theenterprises is in the beginning of operation) or profit before tax (listed companies)

for example, under the guidance of the global ASEANif larger revenue of USD 300billion, the auditor will select a lower range 1 % to determine specific materiality

The performance materiality: refers to the figure that is smaller materiality

for all declared transactions, balances set by the auditor Auditor can rely on that toperform audit procedures with the assumption that there are always misstatements thatcan be estimated For example, by experience of auditing a repeated client for manyyears, the auditor determines the total number of estimated misstatements is 10% ofmateriality, thus performance of materiality is determined as follows materiality lesstotal of estimated misstatements (10% of materiality)

The determination of materiality, performance materiality has an important role

in the audit, it helps auditor to identify material areas, the size of the audit procedures,

to conclude about the differences need to be adjusted On the basis of identification ofmateriality, auditor will determine trivial misstatement -The level of misstatementsmay be acceptable for an effective audit usually by 2-5% of the materiality.Accordingly, if the difference is less than this level, auditor can reduce the substantivetests and does not make adjustments If the difference is greater, it is necessary toconsider in more detail and if combination of differences is greater than performancemateriality, financial statement is considered as has material misstatement

1.3.1.5 Developing an overall audit program

After the overview evaluation about effectiveness and efficiency of the internalcontrol system, identification of audit objectives and assessment of related risks,auditors are going to conduct designing audit program of fixed assets Generally, afixed asset audit program includes: Specific audit objective for fixed assets; theinstructions about steps of work, the audit procedures that include tests of control,analytical procedures and tests of details for fixed assets; specific audit techniquesneed to be applied in the step by step of work; time of beginning and completing, thescope of audit procedures; documents that are audit evidence related to fixed assetsshould be gathered

1.3.2 Audit implementation

1.3.2.1 Performing tests of controls in auditing fixed assets

Auditing standards require that the auditor should obtain and document a

misstatement, whether due to error or fraud Tests of controls are designed to assess theoperating effectiveness of controls in preventing, or detecting and correcting materialmisstatements at the assertion level Designing tests of controls to obtain relevant auditevidence includes identifying conditions (characteristics or attributes) that indicateperformance of a control, and deviation conditions which indicate departures fromadequate performance The presence or absence of those conditions can then be tested

- Increase due to transferred from construction in progress: consider the process

of gathering documents, determine whether identification of costs and calculation cost

of the project has followed the management policies of client, and whether it wasreally effective

Some common tests of control can be applied for decrease transactions duringthe period:

- Auditors should consider the authorization process of disposals; interviewclient's board of executives about the decision, establishment of valuation council,determination of damages, design contracts, make minute of disposal, hand-overminute,

- Review the terms of the resale, disposal, related contribution of capital areauthorized and must be consistent with the current financial standards

- Review the conditions of for transfers of fixes assets to prepaid expenses,tools and instruments for use

- Review whether the recognition of decrease transactions is entried to bookproperly

After understand how is the internal control for fixed assets designed and howdoes it operate, auditors will reassess risks of control for each assertions in order to

identify the strengths and weaknesses of internal control, since then adjusting the auditprogram accordingly.

Outcome of the results of tests of controls

Auditor analyses results of tests of controls:

If control deficiencies are identified, auditor need assess those deficiencies todetermine their severity, modify the preliminary control risk assessment, document theimplications of the control deficiencies

If no control deficiencies are identified, auditor will determine whether thepreliminary assessment of control risk as low is still appropriate, determine the extentthat controls can provide evidence on the correctness of account balances, determineplanned substantive audit procedures

1.3.2.2 Performing substantive tests in auditing fixed assets

Assurances required by auditor in performing substantive procedures

 Fixed assets reflected in balance sheet physically exist

 Organization has rights of ownership to recorded fixed assets

 Fixed assets include all relevant items, including those that are purchased,contributed, constructed in-house or by third parties, and lease meeting the criteriafor capital leases

 Fixed asset additions are recorded correctly

 Items to be capitalized are identified and distinguished from repairs andmaintenance expense items

 Depreciation/amortization/depletion calculations are made and based onappropriate estimated useful lives and methods

 Retirements, trade-ins, and unused property and equipment are identified andrecorded correctly

 Fixed assets and related expenses are appropriately presented in the financialstatements with adequate disclosures

 Fraudulent transactions are not included in the financial statements

Management assertions and substantive procedures for fixed assets

Table 1-4 Management Assertions and Substantive Procedures for Fixed Assets Management assertion Substantive procedure

assets exist 2 Inspect tangible assets

3 Vouch additions to supporting documentation

4 Review account activity for the year andvouch significant items

Completeness - All fixed assets have been

recorded

1 Perform substantive analytical procedures

2 Review capitalization policy to assure thatall significant expenditures are properlycapitalized

3 Review entries to repair and maintenanceexpense to determine whether some itemsshould have been capitalized

Rights/Obligations - The organization has

legal title or similar rights of ownership to

recorded fixed assets

1 Inquire of management as to whether fixedassets have been pledged as collateral

2 Examine documents of titleValuation/Allocation - Fixed assets are

3 Test amortization expense

4 Assess the reasonableness of carryingamounts and unamortized balances

5 Inquire of management as to whether therehas been any permanent impairment of assets

6 Assess management’s impairmentestimates

Classification - Fixed assets items are

recorded in the proper account

1 Review policies for classification andaccounting diagram of fixed assets of theclient, to ensure that they are reasonable andconsistent with the current regulations

2 Select sample for the test of classification,consider book entries, reconciliation between

the account ledger and general ledger.

Cut-off – Transactions related to fixed

assets are recorded in the correct

accounting period

1 Check in the detail of the transactions offixed assets at the end of the accounting yearand at the beginning of the next year toverify the correct period

Presentation/Disclosure - Fixed assets and

relate expenses, such as depreciation,

amortization, or depletion, are

appropriately presented in the financial

statements with adequate disclosures

1 Review presentation and disclosure in thefinancial statements and determine whetherthey are in accordance with GAAP

 Performing substantive test of details of fixed assets

Testing additional transactions in current period

Enterprises usually spend tremendous amount for purchase or lease of fixedassets Therefore, recording and calculating additional transactions of fixed assets have

a direct effect on the accuracy of financial statements

The examination of these transactions focused on completed construction inprogress and purchase transactions Moreover, the auditor also inspects the balance ofincreased items

Testing decrease transactions in current period

The auditors will review the decision of company about fixed asset whichregarding to: disposal, written-off; joint venture by fixed assets; finance lease;revaluation; missing or lost in order to examine whether these transactions complywith current financial policies In addition, clearance transactions are inspected towarrant the accuracy

Investigate the account balance of fixed assets

 For the opening balance:

In one hand, if fixed assets item were audited previous year by existing audit firm

or confirmed about the correctness it do not need to inspect In the other hand, the auditorswill breakdown the opening balance and compare the number in subsidiary with generalledger to evaluate the rightness of account balance In several cases, they have to perform

 For the closing balance:

Closing balance = Opening balance + Addition – Disposal

With closing balance, the auditors will base on both opening balance andaddition/disposal transaction in fiscal year to examine it Furthermore, they screenphysical count results of company, when the physical count was perform, auditorchose several items to correspond from book to floor and floor to book

Consider the lease contracts for fixed assets and income from rental

When audit this item, auditors analyse the revenue comes from leasing fixedassets operation then compare it with the amount in contract and cash ledger

Moreover, the auditor considers what the recording account follows currentregulation is approved Due to this, they will investigate lease contract, find utilitiesexpense related to leasing operation are paid by whom and reconciliation with relatedaccounts

Testing the subsequent expenditure of the asset

The main purpose of this investigate is to determine which expenditure willadded to the carrying amount of fixed assets and which will recorded as expense in theperiod

Auditor reviews the completeness and accuracy of recognition expense throughdetermining whether these expenses will certainly have economics benefit for usingfixed assets If incurred expenses do not meet the requirements, they are recorded asrevenue expenditure in period

Finally, auditor generates analysis table about monthly expenses then contraststhem with those of previous year and investigate the deviation if it is material

Audit depreciation expense and accumulated depreciation

The basic objective of the depreciation expense audit is to consider whether theprocess of calculation, evaluation, determination and allocation of depreciation offixed assets for the objects used is reasonable and ensure consistency Auditors oftenimplement following procedures:

- Collect, exchange, interview to have understanding about the depreciationpolicy that unit applies and assess the reasonableness of this policy Find out the causeand assess the relevance if there is a change in the depreciation policy in the period

- Consider consistent of depreciation method with the previous period and ifthere is any change auditor should assess whether this change is reasonable and isdisclosed.

- Check the calculation and allocation of depreciation:

+ Check the basis that company use to calculate depreciation: Cost, estimatedresidual value, estimated useful life; consider the reasonableness of the allocation ofdepreciation policy

+ Conduct sampling some assets to recalculate depreciation

+ Review the accounting for depreciation and allocation; compare and reconcilefigures on a depreciation table, depreciation account leger, fixed assets registers,

+ Review the cases that fixed assets are fully depreciated fixed assets are still inuse

- Check the accumulated depreciation of fixed assets:

+ Check the accounting for depreciation increases accumulated depreciation.+ Check the write-off accumulated depreciation for disposal transactions in theperiod

+ Recalculate the accumulated depreciation of fixed assets

- Compare the figures on the accounts ledger and general ledger

 Perform substantive analytical procedures

To determine reasonableness of current charge to the accounts, analyticalprocedures could incorporate a number of ratios and an overall test of reasonableness Ratios can include:

- Current depreciation expense as a percentage of the previous year depreciationexpense

- Fixed assets as a percentage of previous year assets

- Depreciation expense as a percentage of assets each year

- Accumulated depreciation as a percentage of gross assets each year

- Average age of assets

Another analytical procedure that can be conducted during this stage isReasonable tests Reasonableness tests involve developing an independent expectationbased on financial and nonfinancial data, frequently by a computation or series of