Tiếng anh improving audit of fixed assets in financial audit conducted by vietnam auditing and valuation company limited hanoi branch

NATIONAL ECONOMICS UNIVERSITY NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM o0o INTERNSHIP REPORT TOPIC IMPROVING AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT CONDUCTED BY VIETNAM AUDITING A[.]

NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM

COMPANY LIMITED – HANOI BRANCH

HANOI, 2019

TABLE OF CONTENT

TABLE OF CONTENT

LIST OF TABLES

INTRODUCTION 1

CHAPTER 1: CHARACTERISTICS OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT CONDUCTED BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH 2

1.1 Theoretical framework of audit of fixed assets affecting on financial statement auditing 2

1.1.1 Definition and classification of fixed assets 2

1.1.2 Accounting for fixed assets 6

1.1.3 Common misstatements related to fixed assets 7

1.1.4 Internal control over fixed assets 8

1.2 Audit objectives of auditing fixed assets in financial audit conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 13

1.3 Audit of fixed asset in financial audit process conducted by Vietnam Auditing and Valuation Company – Hanoi Branch 14

1.3.1 Planning the audit 14

1.3.2 Implementing the audit 19

1.3.3 Completing the audit 27

CHAPTER 2: CURRENT PRACTICE OF FIXED ASSETS AUDIT IN AUDIT FINANCIAL STATEMENT BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH 28

2.1 Planning the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 28

2.1.1 Prepare audit plan 28

2.1.2 Understand the client’s business and industry 28

2.1.3 Understand internal control 30

2.1.4 Perform preliminary analytical procedures 32

2.1.5 Assess materiality and risk 34

2.1.6 Design audit programs 36

2.2 Implementing the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 36

2.2.1 Perform Tests of Controls 38

2.2.2 Perform Analytical Procedures 40

2.2.3 Perform of Test of Details of Balances 42

2.3 Completing the Audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 61

CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE THE AUDIT PROCESS OF FIXED ASSETS BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH 64

3.1 Assessment on the status of auditing fixed assets by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 64

3.1.1 Strengths 64

3.1.2 Weaknesses 66

3.2 Recommendations to improve the audit of fixed assets in financial audit process conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch.69 3.2.1 Planning the audit 69

3.2.2 Implementing the audit 70

3.2.3 Completing the audit 74

CONCLUSION 75

REFFERENCES 76

APPANDEX 76

LIST OF TABLES

Table 1.1: Detailed audit objectives for fixed assets 14

Table 1.3: List of decreased fixed assets transactions 21

Table 1.4: Detailed inspection of increased (decreased) fixed assets transactions 23

Table 1.5: Detailed inspection of fixed asset depreciation 24

Table 2.1: Table of asset structure analysis of ABC Company 33

Table 2.2: Table of the materiality for each item of AVAHN 34

Table 2.3: Table to determine the materiality at ABC Company 34

Table 2.4: Risk assessment matrix 36

Table 2.5: List of fixed assets of ABC Company 37

Table 2.6: Questions to understand internal control for fixed assets at ABC Company 40

Table 2.7: Table of analysis of rates related to fixed assets 41

Table 2.8: Excerpt from the WPs of auditors - Check the summary data of Account 211 45

Table 2.9: Reconciliation of data on the trial balance with depreciation table 46

Table 2.10: Check for abnormal reciprocal of fixed assets 47

Table 2.11: Excerpt from WPs of auditors – Checking unusual reciprocal for purchasing of fixed assets 48

Table 2.12: TSCĐ Excerpt from working papers of auditors - Table of historical cost calculation of fixed assets 52

Table 2.13: Extract from working papers of auditors - Checking details of increased fixed assets 54

Table 2.14: Checking abnormal reciprocal depreciation of fixed assets 56

Table 2.15: Excerpt from the auditor's working paper - Checking the depreciation time of fixed assets 58

Table 2.16: Excerpt from the auditor's working paper - Check the depreciation expense of fixed assets 60

Table 2.17 : Excerpts from the WPs of the auditors – Audit conclusion 63

Over thirty years of renovation and integration with the world, Vietnam's economyhas been growing strongly The number of enterprises engaged in economic activitieshas continuously increased over the years, playing a key role in the movement anddevelopment of the country in all fields The information on the financial and non-financial situation of enterprises is always the top concern of investors, government,financial institutions and credit Independent auditing activities were established toprotect the interests of economic entities and ensure transparency in the financialinformation of businesses In nearly 25 years of establishment and development inVietnam, auditing has played a very important role in building a healthy financialinformation environment

Enterprises use different inputs to create products, goods and services One of theimportant input factors that rare enterprises can lack in their business activities isfixed assets Although the transactions related to fixed assets can be said to be quitemodest compared to other items, it is often of great value and accounts for asignificant proportion in the asset structure of enterprises Moreover, the cost of fixedassets is gradually depreciated into expenses, affecting business results ofenterprises Fixed asset audit plays an important role in the financial statement auditprocess Because of the important role of fixed assets, I decided to select the topic:

"Improving the audit of fixed assets in financial audits conducted by VietnamAuditing and Valuation Company Limited - Hanoi Branch"

The content of the topic consists of 3 chapters:

Chapter 1: Theoretical framework of audit of fixed assets in financial statementsaudits

Chapter 2: Current practice of fixed assets audit in audit financial statement byVietnam Auditing and Valuation Company Limited – Hanoi Branch

Chapter 3: Assessments and recommendations to improve the audit process of fixedassets by Vietnam Auditing and Valuation Company Limited – Hanoi Branch

I sincerely thank teacher Nguyen Thi Thanh Diep for enthusiastically guiding me tocomplete the topic I would also like to express my deep gratitude to the Board ofDirectors of Vietnam Auditing and Valuation Company Limited in Hanoi,departments and especially the brothers and sisters in the Audit Department tofacilitate I practiced at your company Due to limited practice time with my ownpractical experience, the topic is difficult to avoid shortcomings Therefore, Irespectfully hope that the teachers and your company will make suggestions for thethematic to be completed more

CHAPTER 1:

THEORETICAL FRAMEWORK OF AUDIT OF FIXED ASSETS

IN FINANCIAL STATEMENTS AUDITS

1.1. General overview of fixed assets

1.1.1. Definition and classification of fixed assets

 Definition:

Fixed assets are production materials which are used exclusively in production andbusiness, have great value and can be used in many production cycles

 Classification:

According to the form of external expression: This is the current main

classification in the accounting and management of fixed assets in enterprises,whereby fixed assets are divided into three categories:

- Tangible fixed assets

- Intangible fixed assets

- Financial-leasing fixed assets

Tangible fixed assets

According to VAS 03:

“Tangible fixed assets means assets in physical forms which are possessed by theenterprises for use in production and business activities in conformity with therecognition criteria of tangible fixed assets.”

“To be recognized as tangible fixed assets, assets must meet simultaneously all thefollowing four recognition criteria:

- Future economic benefits will surely be obtained;

- Their historical cost has been determined in a reliable way;

- Their useful life is estimated at more than one year;

- They meet all value criteria according to current regulations.”

Intangible fixed assets

According to VAS 04:

“ Intangible fixed assets mean assets which have no physical form but the value ofwhich can be determined and which are held and used by the enterprises in theirproduction, business, service provision or leased to other subjects in conformity withthe recognition criteria of intangible fixed assets.”

The enterprises often make investment in order to acquire intangible resources such

as the right to use land for a definite term, computer software, patent, copyright, etc

To be recognized as intangible fixed assets, an intangible asset must simultaneouslysatisfy:

- The definition of an intangible fixed asset; and

- Four (4) recognition criteria below:

+ The certainty to acquire future economic benefits brought about the asset;+ The asset’s historical cost must be determined un a reliable way;

+ The useful life is estimated to last for over one year;

+ All value criteria prescribed by current regulations are met

Financial leasing fixed assets

Finance lease is the lease of assets that the lessor has transferred most of the risksand benefits associated with the ownership of the property to the lessee Propertyownership can be transferred at the end of the lease term

Financial leasing fixed assets are assets that are not yet owned by the hiredenterprise But the lessee must have obligations and legal responsibilities formanagement, maintenance, use and depreciation of financial leasing fixed assets as afixed asset of the enterprise

In addition, fixed assets are classified according to criteria such as:

According to economic uses: Fixed assets include 4 types:

- Fixed assets used in production and business;

- Fixed assets in administration;

- Benefit fixed assets;

- Fixed assets awaiting processing

According to the source of formation: Fixed assets include 4 types:

- Fixed assets are formed from capital allocated by the State budget or higherlevels;

- Fixed assets are formed from supplementary capital (from enterprisefunds );

- Fixed assets formed from loan capital;

- Fixed assets are formed from joint venture capital or equity capital (capitalcontribution in kind is fixed assets)

According to the nature of ownership: Fixed assets include 2 types:

- Self-created assets;

- Outsourcing fixed assets

 Terms related to fixed assets:

Historical cost of fixed assets:

Historical cost of tangible fixed assets means all the costs incurred by the enterprises

to acquire tangible fixed assets as of the time of putting such assets into the for-use state

ready-Historical cost of tangible fixed assets means all costs incurred by the enterprises to

acquire intangible fixed assets as of the time of putting these assets into use asexpected

Fixed assets depreciation

Depreciation means the systematic allocation of the depreciable value of fixed

assets throughout the useful life of such assets

Depreciable value means the historical cost of fixed assets recorded on financial

statements, minus (-) the estimated liquidation value of such assets

Useful life means the duration in which the tangible fixed assets produce their effect

on production and business, calculated by:

a/ The duration the enterprise expects to use the tangible fixed assets, or:

b/ The volume of products, or similar calculating units which the enterpriseexpects to obtain from the use of assets

Liquidation value means the value estimated to be obtained at the end of the useful

life of the assets, after subtracting the estimated liquidation cost

Reasonable value means the value of assets, which may be exchanged among

knowledgeable parties in the par value exchange

Residual value means the historical cost of tangible fixed assets after subtracting the

accumulated depreciation thereof

Recoverable value means the value estimated to be obtained in future from the use of

the assets, including their liquidation value

 Characteristics of fixed assets affect financial auditing:

Fixed assets in the enterprise include many different types, each with differentcharacteristics and management requirements but they are the same in the largeinitial investment value and the capital recovery time over a year or a cycle businessproduction of enterprises In the process of production and business, the value offixed assets gradually decreases after each business cycle but retains its originalmaterial form This is a feature that helps auditors to check the existence of fixedassets at the end of the period based on the approved fixed asset physical countminutes

Fixed assets are large value items which often account for a significant proportion oftotal assets on the balance sheet and change according to each industry, each field ofoperation Especially in manufacturing enterprises, the value of this item accounts for

a very high proportion of total assets (60-70%) It is for this reason that the process

of auditing fixed asset items often occupies an important position in the auditingprocess of financial statements However, the auditing of fixed assets usually doesnot take much time because:

- The number of fixed assets is usually not much and each object is often ofgreat value;

- The number of increased and decreased transactions in the period is usuallynot much;

- Closing fixed assets at the end of the period is not as complicated as term assets because of the possibility of confusion in the recognition of fixedasset transactions between the years is not high

short-Accumulated depreciation of fixed assets are expressed through the depreciationvalue of fixed assets since the assets are put into use until the time of closing thebooks to make reports

Depreciation value is an accounting estimate rather than actual cost incurred.Because, the depreciation level depends on three factors: historical cost, estimatedliquidation value and useful life In particular, cost is an objective factor, and theliquidation value and the useful life are based on the unit's estimate It is for thisreason that the audit of depreciation value is a check of an accounting estimate andthere is no document to be able to check and calculate accurately Therefore, alongwith the technical specifications of the seller, the valuation, the business situation ofenterprises must check for useful life with fixed asset depreciation framework set bythe Ministry of Finance in order to ensure fixed assets are depreciated, they are inaccordance with current regulations

In addition, because depreciation is a systematic allocation of historical cost afterdeducting the estimated liquidation value, its rationality depends on the depreciationmethod used Therefore auditing the depreciation expenses also carries the nature ofthe inspection on the application of accounting methods

Understanding the characteristics of fixed assets will help auditors understand thetypes of related risks, thereby determining the appropriate amount of audit work to

be performed

1.1.2. Accounting for fixed assets

1.1.2.1.Accounting of increase fixed assets

a Receiving capital contribution by fixed assets

 Procedures needed:

- Minutes of recognition of the value of fixed assets contributed as capital

- Minutes of handing over fixed assets

- Setting up fixed asset card

 Accounting:

Debit Acc.211 - Historical Cost of FA

Credit Acc 411 - Business capital

b Purchasing fixed assets (domestic)

Enterprises account VAT according to

the deduction method

Enterprises account VAT according tothe direct method

Debit Acc.211 – Tangible FA (Purchase

price without VAT)

Debit Acc.133 – VAT deducted (1332)

Credit Acc 111, 112…

Credit Acc 331 – Account Payables

Credit Acc 341 – Long-term borrowing

Debit Acc 211 - Tangible FA (Purchaseprice includes VAT)

Credit Acc 111, 112…

Credit Acc 331 – Account PayablesCredit Acc 341 – Long-term borrowing

c Purchasing fixed assets (Importing)

Enterprises account VAT according to

the deduction method

Enterprises account VAT according tothe direct method

- Accounting of import prices

Debit Acc.211 – Tangible FA

Credit Acc.331 - Account Payables

- Accounting of payable import tax

Debit Acc.211

Credit Acc 3333 - Import tax

- Accounting for special

consumption tax (if any)

Debit Acc.211

Credit Acc.3332 - Special consumption

tax

- Accounting for environmental

- Accounting of import pricesDebit Acc.211 – Tangible FACredit Acc.331 - Account Payables

- Accounting of payable import taxDebit Acc.211

Credit Acc 3333 - Import tax

- Accounting for specialconsumption tax (if any)

Debit Acc.211Credit Acc.3332 - Special consumptiontax

- Accounting for environmental

protection tax (if any)

1.1.2.2. Accounting of liquidation and sale of fixed assets

Debit Acc 111,112,131 - Total payment

Credit Acc 711 – Other income

Credit 3331 – VAT

At the same time, record decrease assets:

Debit Acc.811 – Residual value

Debit Acc.214 – Depreciation

Credit Acc.211 – Historical costs

1.1.2.3. Accounting of fixed asset depreciation

Debit Acc.641 - Depreciation of fixed assets for sale

Debit Acc 642 - Depreciation of fixed assets for management

Debit Acc 627 - Depreciation of fixed assets for production

Credit 214

1.1.3. Common misstatements related to fixed assets

Existence - Fixed assets are recorded fictitiously, not actually

Completeness - Loss of fixed asset purchase invoices or expense bills

related to installation costs

- Transactions record decrease due to liquidation of sale areomitted

- Invoices to purchase fixed assets are accounted directly into

expenses in the periodValuation - Fixed assets are purchased at a price higher than the market

price

- Allow the depreciation period to be inconsistent with thedesigned capacity and mode

- Fixed assets are damaged cannot be used

- Fixed asset repair costs related to changing the nature ofassets accounted into expenses in the period

- The repair costs do not change the nature, capacity .accounted into the historical cost

Accuracy - The historical cost is recorded with the wrong number

- Calculating wrong depreciation and accounting for wrongdepreciation expenses

Classification

and presentation

- Intangible fixed assets monitored on tangible fixed assets,asset classification is wrong

1.1.4. Internal control over fixed assets

1.1.4.1.Objectives of internal control over fixed assets

The objective of internal control is to improve the efficiency of using capital invested

in fixed assets through investment in the right purpose, without waste, as well aseffectively managing and using fixed assets In addition, internal control helps toprotect fixed assets, books and related information, promote compliance with the law

of enterprises based on guiding documents to provide reliable information andestablish honest and reasonable financial statements Moreover, internal audit alsohas to help properly account the costs constituting the cost of fixed assets, repaircosts, depreciation costs, etc Because these costs are important, if errors can lead tomaterial misstatements on financial statements

For example, if there is no correct classification of expenses that increase the cost offixed assets or any expenses to be included in the cost of the year, it will cause thefixed assets item and the costs of the year to be wrong Or vice versa, if there is nostrict regulation on procurement, maintenance and liquidation of fixed assets, etc atthis time, the arising costs may be more than the actual ones, leading to the increase

in losses and losses due to fraud for money

1.1.4.2.Content of internal control over fixed assets

The internal control activities for fixed assets are necessary to ensure that theworking steps in the process of procurement and liquidation of fixed assets areimplemented properly and effectively In order to ensure the reliability of financialinformation related to fixed assets, the unit needs to design the operation ofregulations and internal control procedures fully, appropriately and closelyassociated with the work steps of fixed assets item, specifically:

 Determine investment needs and make investment decisions for fixed assets.

Determining investment needs and making investment decisions for fixed assetsmust be based on the long-term investment plan as well as the actual use demand ofthe unit Large companies often set up annual plans and budget estimates for fixedassets The plan usually includes the contents of procurement, liquidation, sale offixed assets and funding for this need The department in need conducts inspection,considering the urgency of the addition or liquidation of fixed assets and thenrecommends to the superior Then with the approval of the competent authorities, thepurchasing and liquidating department will organize the purchase or liquidation offixed assets

Planning and estimation are important tools to control for fixed assets As a result,enterprises will have to review all the current fixed asset status and their use level,compare with the production plan of the plan year The process of balancing betweendifferent options (new purchase, upgrade, repair ) with a certain amount of budget

is also a process for enterprises to review their resources and review in detail toevaluate each option

 Organize review, approval and handling of transactions about repair, liquidation and sale of fixed assets

For fixed assets in enterprises, functional activities such as preserving, recording,approving and purchasing and liquidating fixed assets must be separated from theapproval and implementation

For fixed asset repair: The plan of fixed asset repair or the proposed repair beyondthe plan needs to be approved by the Board of Directors Upon completion, theremust be a written record of final settlement, an acceptance report and liquidation ofthe dossier Fixed asset accountant shall check and review the documents related torepair and maintenance activities of fixed assets to ensure that the documents aremade according to regulations and signed for approval; making books to monitor

fixed asset repair and maintenance expenses to monitor the progress and situation ofpayment with contractors.

For liquidation and sale of fixed asset: Every year, the fixed asset accountants checkand review the spreadsheet of depreciation and fixed asset book, make a list of fixedassets which will be fully depreciated in the year to make a plan to liquidate fixedassets in that year When a request about liquidation of fixed assets which are notfully depreciated but does not need to be used or cannot be restored arises, it isnecessary to have a written record determining the technical status of the asset (withconfirmation of the user department , specialized technical department) Fixed assetaccountants checks and reviews the recognition of cost and income from liquidation.Fixed assets accountants at the end of the month reconciles fixed assets books andfixed asset depreciation tables to ensure the removal of fixed assets from the fixedasset list under the permission of the fixed asset liquidation council

To achieve control objectives, the unit must conduct specific control tasks associatedwith each step of the job The content of specific internal control work is not thesame for the control of each stage of procurement and liquidation of fixed assets butcan be generalized:

First: The unit develops and issues regulations on management in general and

internal control in particular for specific tasks in procurement and liquidation offixed assets These rules can be divided into two categories:

Regulations on functions, responsibilities, rights and obligations of persons ordepartments related to handling work such as: persons assigned to review andapprove fixed asset procurement plans, persons performing procurement andliquidation of fixed assets, etc These regulations both show the responsibility ofprofessional work but simultaneously also show the responsibility of the controlaspects

Regulations on the order and procedures for internal control through the sequence ofprocedures for handling work such as: The order and procedures for approving plansabout investments procurement and liquidation of fixed assets; competence toapprove regulations specify which level or part of the business to implement

Second: The unit organizes to implement the regulations on management and control

mentioned above associated with each stage of work related to fixed assets item:Organizing assignments, arranging personnel to participate in the procurement,delivery, management, use and liquidation of fixed assets; disseminating thoroughly

the functions and tasks of the individual officers when performing the work,checking and urging the implementation of the regulations.

Third: Organize to implement control principles In order to well perform the work

steps to be conducted for fixed asset transactions, the internal control of the unit must

be comply the following basic principles:

Implementing segregation principle with system: This principle requires a separationbetween the management of fixed asset use with the recording of fixed assetmanagement (accounting), between the management and use of fixed assetsdepartment with the function of deciding and approving fixed asset purchase, sale,transfer and repair operations; between buyers and sellers of fixed assets with fixedasset use and accounting departments

Implementation of authorization and approval principles: The unit must have clearregulations on the authority of each level for the approval, management and use offixed assets The approval of economic operations related to procurement of fixedassets, construction and investment, transfer of fixed assets through other units,liquidation, sale or major repair of fixed assets also needs to clearly define theauthority of each management level Good implementation of control principlesbetween functions will avoid collusion and fraud for self-interest in managing fixedassets

 Other tools for control and protection of fixed assets

When fixed assets are purchased, the department must ensure that fixed assetsreceived correctly according to purchase needs, time and standards The handover offixed assets shall be recorded through the fixed asset handover minutes

For the recognition of fixed assets: After the fixed assets are handed over to the

department to use and make handover minutes, the departments using fixed assetsneed to set up a system of fixed asset detailed book : detailed books, detailed cards,detailed dossiers for each assigned asset Detailed dossiers include: minute ofdelivery of fixed assets, contracts, invoices of fixed asset purchase and other relevantdocuments Fixed assets must be classified and statistically classified by fixed assetgroups and according to each appropriate unit used according to the classification offixed assets prescribed in the current accounting standards and regimes A completedetailed book system will help analyze and easily manage the increase and decrease

of fixed assets during the year Since then, it can help to effectively protect assets,timely detect losses or shortages of assets, helping units to use fixed assets

effectively In addition, thanks to the detailed book system, it is possible to comparethe actual costs incurred by fixed assets with the business plan estimates.

For depreciation of fixed assets: The level of depreciation of fixed assets must be

approved through the approval of the useful life of fixed assets in the minutes ofhandover of fixed assets The duration of use of fixed assets is determined based onthe regulations on fixed asset use and depreciation regimes of the Ministry ofFinance, technical specifications, use demands of enterprises and other relatedregulations in each period The change of the fixed asset depreciation level must benotified in writing to the directly managed tax authority and only changed once Atthe end of the month, fixed asset accountants check transactions in the month toensure all fixed asset fluctuations in the month have been calculated to increase anddecrease fully and timely depreciation The table about summary and fixed assetdepreciation allocation must be retained monthly by the accountant The accountantsynthesizes data on fixed asset depreciation (deduction rate, depreciation amount )

on the table about summary and fixed asset depreciation allocation when collectingexpenses for calculating costs

Periodic physical count of fixed assets: Fixed asset accountant coordinates with the

user department to physical count of fixed assets periodically or unexpectedly whenrequired according to the order of the sample process and the unit guiding thephysical count of fixed assets; compare actual amount of physical counting withfixed assets books to timely detect losses of fixed assets At the end of the physicalcount process, it is necessary to make an physical count minutes of each departmentand report the results of the whole unit All papers and documents related to thephysical count process must be kept at the accounting department

Provisions on distinguishing expenses calculating into the historical cost or into costs of the accounting period: The costs of repairing and protecting fixed assets to

restore or maintain the ability to bring the economic benefits of the assets according

to the initial standard operating status, it is included in the production and businesscosts in the period And the costs incurred improve the current state of the assetcompared to the original standard state of the asset such as: Increasing useful life,increasing usage capacity, significantly increasing quality products produced orreduced operating expenses of assets compared to previous ones, those expenses arerecorded as increase in the cost of fixed assets When the internal control of the unit

is not good, the accounting of fixed assets does not understand the technicalstandards of fixed assets, it is very difficult to classify the above two expenditures

Therefore, the enterprise should set a standard to distinguish these two items Thestandard should be based on the current and specific accounting standards or regime

of the business

Material protection provisions for fixed assets: designing and applying measures to

protect assets, combat theft, fires, buy full insurance for property, etc

1.2. Audit objectives of auditing fixed assets in financial audit

The general objective for auditing the fixed assets item is that auditors gathersufficient appropriate evidence, thereby giving a confirmation of the reliability of therelevant financial information It also provides relevant document information as areference base when auditing other related cycles

In order to achieve the common goal, auditors must achieve specific objectives onfixed assets The specific objective of fixed assets is that the auditor must gathersufficient evidence to prove that the database relating to economic transactions andfixed asset account balance is reasonably honest, reflects the true nature of economicand compliance match the business characteristics of the enterprises

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.

obligations

 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.

5 Valuation and

allocation

 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.

8 Presentation and

disclosure

 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

1.3. Audit of fixed asset in financial audit process

Fixed asset audit is one of the components of financial statement audit so theprocess of auditing fixed assets also follows the general audit sequence whichinclude three steps: planning an audit, performing audit plan and completing theaudit

1.3.1. Planning the audit

According to VSA 300, Auditing plans include: planning strategic audit, overallaudit planning and designing audit programs (checking each item on the auditreport) For fixed asset items, the content of audit planning includes: making overallaudit plan and designing audit programs Specifically, the work content is as follows:1.3.1.1. Understand client information

Understanding client information is a top priority for all audits because if you donot understand the basics of business activities of client, auditors will notunderstand the existed frauds and errors No business exists without beinginfluenced by internal and external factors These two factors impact strongly onthe structure and performance of businesses The first step which isunderstanding the operational characteristics of customers helps auditors toinitially identify business risks, as a basis for assessing risks associated withdesigning appropriate auditing procedures

Like other accounting items or other accounting cycles, fixed assets aresignificantly affected by the business sector, business activities and the strategy

of the enterprise For example, a company operating in the construction sectorwill have a much higher proportion of fixed asset than a trading company Inorder to understand about clients in general and fixed assets of enterprises inparticular, auditors carries out the following procedures:

Understand the field of activities and business lines:

Each industry has different characteristics that require an appropriate accountingsystem and specific accounting principles Information to be gathered includes:

general knowledge about the economy, policies of the state applicable to thebusiness sector of audited unit, organizational structure of personnel, productionmaterials, functional roles of departments, types of goods and services ofenterprises, etc In order to get this information, auditor needs to discuss with thepredecessors and discuss directly with the employees or the Board of Directors ofthe customers In addition, auditors can find out more information on books andmass media These information helps auditors gain knowledge about the structure

of fixed assets, the main types of fixed assets of enterprises and their role inbusiness activities of enterprises

Review the previous year's audit files and general audit files

This procedure helps auditors understand the basic issues in production andbusiness activities as well as mistakes of enterprises and issues that need to bediscussed with management in previous years This is a procedure that helps reducethe time and cost of an audit while ensuring the credibility of the statements made.For example, last year's audit report of the auditing firm gave qualified opinionsbecause there was not enough reasonable basis to conclude that the firm's fixedassets were presented truthfully and legally So it is clear that in this year, this is asensitive issue and need to focus on clarifying for auditors

Identify Related Parties

Related parties have a significant influence on the honesty, rationality andlegality of the financial statements This is always a complex, sensitive issue and isalways understood relatively and quite abstractly Therefore, important transactionsfor related parties should always be fully and reasonably explained in the statement

of financial statements of the audited units

Understand the factors that influence businesses.

Suppliers, customers, competitors, alternative products and alternative technologiesare factors that directly affect the production and business activities of the auditedunits In addition, enterprises are also indirectly affected by the politicalenvironment, the economic environment, the socio-cultural environment and thetechnology environment, etc Therefore, in this step, auditors will assess theinteraction of enterprises with those Endogenous and exogenous factors Thus, likeother items and cycles, auditors always have to pay due attention and caution to theissues of related parties in the audit of fixed assets

Understand the direction and development strategy of the business

The development strategy of an enterprise is an important factor determining the

existence and development of the enterprise It also affects changes in thestructure and value of assets of the enterprise itself The impact of developmentstrategies on fixed assets of enterprises can be clearly seen by example: Anenterprise with a development strategy is to expand the market and increaseproduct consumption in the coming years At that time, this issue was bornbecause they had to invest in building more factories, buying new machines andequipment This event will entail a series of issues that the auditors need tocheck and review during the implementation of the audit such as determining thevolume of completed construction works or new purchased machinery andequipment are eligible to record increase of fixed assets of the unit This is arelatively complex issue that requires legal bases and flexible judgment ofauditors.

1.3.1.2. Understanding accounting and internal control systems

Auditors survey aspects of internal control to collect evidence of completeness,suitability and rigor of the internal control regulations on fixed assets Auditorsconducts internal control survey of customers in the following forms: Interviewwith the Board of Directors, chief accountant and customers (related people);read documents; observe internal control activities When learning about internalcontrol for fixed assets, auditors often care about the following issues:

- Do you plan and estimate for purchasing of fixed assets?

- Is the unit regularly comparing between the fixed assets subsidiary ledger andthe fixed assets nominal ledger?

- Is there a periodic physical count of fixed assets and reconciliation with fixedasset accounting books?

- Are the differences between the estimated price and the actual price reviewedand approved regularly?

- When selling and liquidating fixed assets, does the Liquidation and SaleCouncil include members according to regulations?

- Is there a policy of distinguishing between expenses incurred after initiallyrecording the increase in historical cost of fixed assets and determining theuseful life or calculating into production and business costs in the period?

- Is the enterprise accounting regime and the method of depreciation of fixedassets that the enterprise is applying in accordance with the current regulations?Besides, auditor also considers the management of fixed assets as well as the

formulation of regulations, principles and procedures for preserving fixed assets.1.3.1.3. Determine the materiality and assess risks

Determine the materiality level

According to Vietnam Auditing Standard No 320, when conducting an audit,auditors must pay attention to the materiality of information and its relationshipwith audit risk

Auditor determines the initial materiality level for the entire financial statement(based on the percentage of targets about profit, revenue, total assets ) Thencalculate the performance materiality level and the threshold of errors that can

be ignored Auditor evaluates the actual error level of fixed assets and compares

it with the threshold of errors that can be ignored previously identified and givesunqualified opinions or qualified opinions

Risk assessment

Audit risk is the risk that auditor expresses an inappropriate audit opinion when thefinancial statements are materially misstated The assessment of audit risk throughthe assessment of three components: inherent risks, control risks, and detectionrisks based on the relationship is reflected in the following model:

Risks related to historical cost of fixed assets: The historical cost of fixed assets

may be misrepresented in comparison with reality In case of increasing fixedassets, the historical cost recorded in the book is often higher than reality Incase of decreasing fixed assets, the historical cost recorded in the book is oftenlower than reality

Risks related to depreciation of fixed assets: Depreciation of fixed assets may be

misleading in terms of calculation and allocation due to the depreciation method

of the units not in accordance with the current regulations and not in accordance

with the method to recover economic benefits of each fixed asset.

Risks related to repair and upgrading of fixed assets: Many fixed asset repair

transactions may be misunderstood in nature as upgrading fixed assets and viceversa Therefore, it can lead to errors that do not record the increase in fixedassets for the case of upgrading fixed assets because the unit accounted into thefixed asset repair costs

Risks of leasing and holding the lease of fixed assets: Many transactions about

leasing fixed assets may not be classified in accordance with the form of leasing

of fixed assets, for example, fixed assets operational leasing which may beclassified into financial leasing For fixed assets operating lease, the lessor mayaccount for the right revenue for leasing assets, the lessee may account fordepreciation of fixed assets

The above are inherent risks that may occur for fixed assets When assessingrisks, auditors mainly take measures to detect inherent errors and assess inherentrisks (IR) Besides, from understanding the internal control for fixed assets,auditors will assess the risk of control (CR) of customers These works will helpauditors design and implement the necessary audit methods to gather sufficientaudit evidence

For fixed assets, the determination of business lines, business situation of theaudited units is very important because it indicates that fixed assets account for

a large proportion of total assets, with whether or not materially affects thefinancial statements Auditors will develop an audit program for fixed assetsincluding audit procedures to gather sufficient evidence related to the objectives

of auditing fixed assets to be achieved

1.3.1.4. Design audit program

The audit program for fixed assets consists of four main parts: determining auditobjectives, identifying material misstatement of the item, audit tests andconclusions The main audit tests include: test of control, substantive tests(synthesis procedure, reconciliation procedures, substantive analyticalprocedures; test of details of balances)

1.3.2. Implementing the audit

Based on the designed audit program, auditors conduct procedures to audit fixedassets item During this period, there are two main tasks: test of control andsubstantive tests

1.3.2.1. Conduct test of control

The test of control only apply in the audit planning period when in the planningphase, auditors believe that it is possible to rely on internal audit to reduce the scaleand scope of substantive tests for fixed assets

Auditors use some methods which mainly are observing the management and use offixed assets in the unit, interviewing the relevant people about the procedures andregulations of the units for fixed assets, checking the records and books , reperformthe procedures for controlling fixed assets of units, specifically:

- Observe the operation of the system (Observe the process of receiving andmanaging fixed assets, assess the value of fixed assets)

- Interview with those responsible for building and maintaining the operation ofthe system (such as implementing procedures for purchasing, receiving,managing, liquidating fixed assets, regulations on physical counts of fixedassets of units, regulations on material protection for fixed assets )

- Reperformance (reperform control procedures of clients to see whether itworks effectively as designed)

- Check documents and proofs for internal control procedures have beenimplemented (sign of approval on the contract, minutes of the receipt of fixedassets, minutes of liquidation of fixed assets )

In the above procedures, the interview procedure is considered to be the leastreliable, so it must be done with other procedures, the implementation procedure isevaluated as the most reliable During the implementation of the test of control, it isnecessary to record in the working papers the items that have been checked, themethod of selecting items to check, the differences detected (differences betweendesign and reality operation), investigate the causes and consequences of thosedifferences, whether it is necessary to implement alternative procedures or changethe audit strategy, making general conclusions about the internal control system ofclients

Especially in the process of assessing the application of internal control regulations,

it is necessary to pay attention to basic aspects: efficiency and effectiveness ofcontrol regulations and continuous implementation of control regulations

1.3.2.2. Conduct substantive tests

This test is often more widely used than test of control in fixed asset items becausethe transactions related to fixed assets are often not so many, the auditors can carryout the inspection of all materiality arising transactions

A Procedures for general assessment of fixed assets

For the purpose of zoning the focus of auditing, normally, auditors conduct generalevaluation and analysis of financial indicators related to auditing content, detectabnormal signs, from which may preliminary assessment of possible possibilities ofmisstatements to related operations The key analytical techniques that can be usedinclude: trend analysis, ratio analysis

Trend analysis

Techniques of trend analysis: Comparison of historical cost of existing fixed assets

of the unit with previous periods; compare the accumulated depreciation value offixed assets with previous periods, compare the residual value of fixed assets withprevious periods, compare the total depreciation expense of fixed assets (or each type

of fixed assets) with the previous periods , making lists to increase or decrease eachtype of fixed asset with previous periods

Ratio analysis

Techniques of ratio analysis: Compare the average depreciation rate of this periodwith the previous periods, compare the average depreciation coefficient of the wholefixed asset and each type of fixed asset with the previous periods, compare the ratiobetween total major repair of fixed assets costs/ total historical cost of fixed assets,between total historical cost of fixed assets/ the total output value with the previousperiods

Analysis of non-financial information

When analyzing changes related to financial indicators related to fixed assets,auditors needs to understand and eliminate the influence of reasonable causes, thefactors that naturally lead to the increase (reduction) of indicators compared to theprevious period such as: Business environment, business conditions, industryfluctuations, pressures, effects of depreciation policies, etc From there, assess andjudge the possibility of misstatement for fixed assets and orientation for detailedinspection of transactions and balances of this item For example, if an enterpriserelocates its business location, whether fixed assets such as houses, warehousing can be recovered completely and thus in the following audit year, it is necessary topay attention to check the historical cost and fixed asset depreciation time ofenterprise

B Detailed inspection of increased (decreased) transactions related to fixedassets

Detailed inspection of transactions recorded decreased fixed assets

In order to inspect the transactions of decreased fixed asset, auditors normallyconsider the liquidation, sale of fixed assets and financial leasing of enterpriseswhether it is implemented through the decision of the Liquidation Council, the Board

of Directors or the competent authorities The most important goal of this work is toensure the decrease of fixed assets is recorded and fully approved In the detailedinspection of transactions recorded decreased fixed asset, the list of decreased fixedassets transactions was built to provide the most general view

No

.

Name of Fixed assets Reason of

decreasin g

Historica

l cost

Date recorded decrease d

Accumulate d

depreciation

Recover

y value Nam

Table 1.3: List of decreased fixed assets transactions

After making the list, auditors plus the items in the table and comparing the data onthe table with the decreased fixed assets transactions recorded in the books andcomparing the accumulated depreciation, residual value, cost and income(recoverable value) related to the decrease of fixed assets in the detailed book offixed assets

Detailed inspection of transactions recorded increased fixed assets

The detailed inspection of increased (decreased) fixed assets is important for theprocess of auditing fixed assets The correct reflection of these transactions has along-term impact on the financial statements of the unit The misstatements in therecording of the increase and decrease of fixed assets not only affect the targets onthe Balance Sheet, but also have significant impacts on the targets on the IncomeStatement, Cash flow Statement and Notes to the financial statement

The detailed inspection of increased (decreased) fixed assets transactions according

to specific objectives is presented in Table 1.4 below:

Audit

objectives Checking of common transactions Issues to note

-Ensure the reasonableness of increasedfixed asset transactions with the actualoperation of the unit;

-Evaluate the reasonableness of theapproval of purchase and sale prices offixed assets increased during the period

Auditors musthave a deepunderstanding

of the actualproductionand businesssituation ofthe enterprise

-Compare data on legal documents related

to increase of fixed assets (VAT invoices,lease contracts, shipping documents )

- Recalculate the historical cost of fixedasset based on checked documents

-Check the bill of the seller and theoriginal vouchers related to the increase infixed assets

- Must graspthe principlesand

regulations onfixed assetassessment.-The extent ofthe surveydepends onthe assessment

of internalcontrol

-Select a sample of fixed asset transactions

to check the classification, review bookentries and accounting books

Combinedwhen auditingthe

completeness

calculationand

assessment offixed assetsEnsuring the

full and timely

(completeness) assets, or record fixed assets into other

items (prepaid, basic construction, etc.)-Reconcile the day and month of fixedasset increase vouchers with the books ofthese transactions (especially transactionsarising at the end of the accounting yearand beginning of the following year)

auditing fixedassets

Ensuring proper

calculation of

fixed assets

(accuracy)

-Total increased lists

-Compare data between the subsidiaryledger, nominal ledger, lists together andgeneral ledger

-Compare data on fixed asset accountingbooks with actual physical count of fixedassets

Pay attention

to machinery.Regularinspections ofland, factoriesand intangiblefixed assets

Tightcombinationbetween fullincrease

recording andcalculation offixed assets

Table 1.4: Detailed inspection of increased (decreased) fixed assets transactions

Detailed inspection of fixed asset depreciation transactions

Detailed inspection of fixed asset depreciation transactions according to specificobjectives is shown in the following procedures in Table 1.5:

Audit Audit procedures

-Learn the causes and assess the suitability if the depreciationpolicy of the enterprise changes compared to the previous periods.Calculating the

-Recalculate the depreciation rate

-Compare figures on depreciation spreadsheets, depreciationregistration table, fixed asset depreciation subsidiary ledger,expenses subsidiary ledger, fixed assets depreciation accountledger

-Check the cases of fixed assets which have been fully depreciatedbut that the enterprise can still use;

-Checking the deduction, stop of depreciation deduction with newlincreased or decreased fixed assets during the period, the costs ofupgrading are accounted for the increase in the historical cost inthe period, the value of the dismantled parts from the assetsreduces the FA historical cost in the period

-Review the policy of allocating fixed asset depreciation expenses

to objects, assessing the reasonableness of these policies-Check the reliability of standards for allocating fixed assetdepreciation expense that the business determines

- Recalculate the allocation of fixed asset depreciation expenses.-Check the accounting of fixed asset depreciation expenses forobjects in relevant detailed books

Table 1.5: Detailed inspection of fixed asset depreciation

C Detailed inspection of balance related to fixed assets

Detailed inspection of fixed assets balance

The detailed inspection of fixed asset balance includes: Detailed inspection of thebeginning and ending balances of fixed assets Specifically:

Beginning balance of fixed assets

The consideration of the beginning balance of fixed assets is carried out depending

on whether the enterprise is audited for the first time or audited for the second time

If this year's audit is carried out by the auditing company which is conducting theaudit of the previous year's financial statements and the beginning balance has beenconfirmed correctly, it is not necessary to perform additional audit procedures If theprevious audit is carried out by another auditing company, the auditor must considerthe audit report and the audit records of previous year related to fixed asset issues, ifthe information can be trusted, the auditors can also accept audit results of theprevious year without additional audit procedures

If the financial statements have not been audited in the previous year or the previousaudit has been carried out by another auditing company, but the auditors do notbelieve in the previous year's audit results or the previous year's financial report isnot an unqualified opinion for the balance of fixed assets, the auditors must considerthe reasons for not an unqualified opinion of the auditors last year In this case, theauditors must apply additional audit procedures such as: Checking the vouchers toprove the balance at the beginning of the year, selecting samples of fixed assets tocheck the actual existence of the assets and consider physical counts results, etc

Ending balance of fixed assets

The audit of the ending balance is determined on the basis of the audit results of thebeginning balance and the increased and decreased fixed assets transactions At thesame time, auditor needs to combine with fixed asset physical count and re-evaluation procedures (participate in physical count and witness); carry outprocedures for confirming fixed assets of the unit stored in the third party to getevidence of the existence and calculation of fixed asset prices Besides, it isnecessary to be paid attention to the aspects about classification and synthesis,presented on financial statements

Detailed inspection of depreciation balance of fixed assets

Beginning balance of depreciation of fixed assets

The consideration of the beginning balance of fixed asset depreciation shall becarried out depending on the enterprise being audited for the first time or auditing forthe second time onwards This work is conducted similarly to the audit of thebeginning balance of fixed assets If the auditors do not believe in the beginningbalance of the audited unit, they must conduct additional audit procedures such aschecking and considering the transactions related to the increase and decrease of

fixed assets and recalculating the data., considering whether the method ofdepreciation is in accordance with the prescribed regime and is consistent betweenperiods.

Ending balance of depreciation of fixed assets

The audit of the ending balance of fixed asset depreciation is verified on the basis ofthe audit results of the beginning balance and increased, decreased and depreciationfixed assets transactions during the period Besides, auditors need to combine withprocedures and re-evaluate the depreciation of fixed assets to have proof about theexistence and calculation the price of depreciation of fixed assets In addition,auditors also need to pay attention to the general aspect about synthesis andpresentation fixed assets depreciation item on financial statements

D Inspection of major repair of fixed assets expenses

This process usually includes the following major tasks:

- Check the completeness and accuracy of the collection of major repair expenses,paying attention to the incurred of "fraudulent" major repair expenses

- Consider according to the source of planned and out-of-plan repair expenses

When undertaking major repairs according to the plan, enterprises often makeadvance deductions for this repair expenses Auditors need to consider whether thislevel of deduction is appropriate or not, fully approved or not

For out-of-plan major repairs, enterprises must conduct allocate expenses that spentfor major repairs into production and business expenses in the period Auditors mustconsider the reasonableness of the allocation level and its impact on production andbusiness results in the period

Considering the settlement of major repair expenses according to the prescribedregime, checking the accounting of major simple repair expenses and major repairand upgrading of fixed assets expenses

1.3.3. Completing the audit

After conducting tests for control and basic tests related to accounting data of fixedassets, auditor must summarize the audit results for this item This work is based onthe results of tests carried out with evidence collected and presented on the summary

of audit results

The main content shown in the summary of audit results usually includes:

Conclusion on audit objectives

Auditors must state the conclusions about the achievement or failure of the audit

objectives If not yet, auditors clearly state the limitation of audit scope andimplement additional audit procedures.

Recommendation

Recommend adjustment entries (if any) or explanations and notes to besupplemented on the financial statements, clearly stating the adjustment cause andadjustment amount

Issues need to be continued to follow in the following audit

-The adjustment of accounting data according to the opinion of auditors is fully andtimely reflected in the relevant accounting books or not

-The unit's solution to the existing problems stated by the auditors

-The misstatements that were detected during the preliminary audit were processed

or not and the level of impact on the financial statements at the end of the period (ifany)

Opinions of the Board of Directors of audited units (if any)

Auditors need to discuss with the Board of Directors on the issues mentioned in theaudit minutes and conclusions of the auditor

CHAPTER 2:

CURRENT PRACTICE OF FIXED ASSETS AUDIT IN AUDIT FINANCIAL STATEMENT BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH

To illustrate the audit process of fixed assets, I take an example at AVAHN'scustomer, ABC Company Limited This is the first year that ABC Company wentinto production so ABC is first-year audit customer by AVAHN (Note: Companyname has been changed to ensure the confidentiality of customer information of thecompany)

2.1 Planning the audit by Vietnam Auditing and Valuation Company

Limited – Hanoi Branch

Preparing an auditing plan for fixed assets is conducted by AVAHN according to thefollowing steps:

- Collecting basic customer information and assessing contract risk: details inworking 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

Perform preliminary analytical procedures

- Understand the internal control of enterprises in general and of fixed assets inparticular and accounting systems related to fixed assets: details in WPs A610 –General assessment of the internal control system of the unit, WPs A450 -Understand about fixed asset cycle and Questionnaires on internal control for fixedassets at 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 fixedassets 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 basicinformation of ABC according to the following WPs:

VIETNAM AUDITING AND VALUATION

COMPANY LIMITED – HANOI BRANCH

Name of client: ABC Company Limited

Closing book date: 31/12/2018

Content: Accept new customers and assess

contract risks

I GENERAL INFORMATION

1 Client: ABC Company Limited

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

Phone number: Fax:

Email: Website:

6 Type of business: Limited Company

7 Fiscal year: 01/01/2018 – 31/12/2018

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 anddigital devices

10 Specific legal regulations related to the operation of Company (if any): None

11 Business representative: Lee Sung X

Address: Dinh Tram Industrial Zone - Viet Yen - Bac Giang

12 Bank involved

13 The subordinate company

15.Related parties

transaction

16 Describe the business relationship:

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 ofFinancial Statements: Vietnamese Accounting Standards

19 Market capitalization of companies: N/A

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

II ISSUES

Events of the current year

The company has full of qualified personnel,

experience and resources necessary to continue

serving customers

X

Any doubts arising in the course of work related to

the integrity of the BOD

X

The audit report on the previous year's financial

statement contains not"unqualify opinion"?

X

Is there any indication that the repetition of the

problem led to such an audit opinion this year?

X

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?

X

Does the company operate in a special regulatory X

environment, operating in a recession, reducing its

Are there any adverse issues, litigation,

irregularities, and material risks related to the

business sector?

X

Does the company have many important

transactions with related parties?

X

Does the company have unusual transactions in the

year or near the end of the year?

X

Does the company have complex accounting or

business problems that are controversial, but the

current accounting standards and regimes do not

have specific guidelines?

X

Was there a serious defect in the internal control

system during the previous year audit?

X

Are there signs that the internal control system this

year has serious defects affecting the lawfulness,

reasonable integrity of the financial statements?

X

Fee

Does the total fee from the customer for a large part

of the total revenue of the company?

X

Does the customer fee a large portion of the income

of the BOD member in charge of the audit contract?

X

Are there any fees that are overdue for an extended

period of time?

X

Relationship with customers

The company or a member of the audit team, within

the scope of their professional involvement in any

dispute involving the customer

X

Does the member of BOD and the audit team leader

participate in the auditing group for more than 3

consecutive years?

X

A member of the BOD of the company or member X

of the audit team has a family relationship or

personal relationship, close economic relations with

customers, employees or the BOD of the customer

The company or member of the audit team is a

member of the fund holding shares of the customer

X

Are any of the following people currently

employees or directors of clients:

- Members of the audit team (including BOD

members)

X

- Individuals who have a close relationship or

family relationship with the above persons

X

Is a member of the board of management or any

members of the audit team going to become

employees of the customer?

X

Is there a loan or guarantee, unlike normal business,

between the plan and the company or a member of

the audit team?

X

Benefit conflict

There is any conflict of interest between this

customer and other existing customers

X

Providing other services

Does the company provide other services to

customers can affect independence

X

Other

There are other factors that make us think of

refusing to appoint audit

X

III EVALUATION OF CONTRACT RISK: LOW

IV NOTE

V CONCLUSION

Client acceptance: YES

Table 2.1 : Excerpt from WPs of auditors - A310 - Accept new customers and assesscontract risks

So, ABC Co., Ltd is a 100% foreign-owned limited company established in Vietnamwith its head office in Dinh Tram Industrial Zone - Viet Yen - Bac Giang Thecompany's fiscal year is from January 1 to December 31 every year The businessline of company is production of mobile phone covers, high-quality electroniccomponents for mobile devices and digital devices Through the assessment, auditorsdetermine contract risk is low so decide to accept ABC as an audit client.

For regular customers, all customer information has been collected on previousaudits and stored in the "General Profile" at the company Therefore, when auditingthe new fiscal year, auditors only collect additional information arising in the audityear, especially changes in accounting policies ABC Company Limited is the firstyear customer audit, so the main auditor collects all information about customersfrom the establishment to the current audit year

2.1.2.1 Understand industry and external environment

 Business sector and business trend:

In the current period of information technology boom, the market of electronic andtelecommunications equipment has been constantly developing with a variety ofproducts, and the needs of people are increasing This is a favorable condition forcompanies producing electronic components to develop products and expand theirscale and ABC Company Limited is one of them

This is an industry with stable input prices and abundant supply

Competitors: The company is under the competitive pressure of many products of thesame type from other countries in the world such as Germany, America, Malaysia,China, Japan and even the same products of other Korean subsidiaries Especially inthe difficult economic period, this competition is fiercer

of related personal income tax documents for foreigners working in Vietnam

Currently the company mainly imports goods from abroad, so it is also affected byIncoterm terms.

2.1.2.2 Understand about the firm

 Understand main business operations and circumstance

ABC Co., Ltd was established on December 19, 2017 The Company's investmentcapital 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 manufacturingwith main activities:

- Manufacturing mobile phone covers and high-quality electronic componentsfor 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, mobiledevices and digital devices;

- Installing, repairing and maintaining spray equipment for painting details onmobile 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

Giang

Customers: In the digital technology age like today, along with beautiful products,

diversified models and types, advanced production technology, ABC specializes inproviding its products to Sam Sung phone manufacturers Main customers forproducts are Dowon eng Vina Co., Ltd., Korea Polytech Co., Ltd

Supplier: Due to production characteristics, ABC Company mainly imports

materials from companies in the same group in other countries around the world.Thanks to the smooth coordination between member companies in the same group,the company can be active in the source of raw materials for its activities Sometypical suppliers of the company are: XYZ France Co., Ltd., XYZ Korea Co., Ltd.,Olex Australia Co., Ltd

 Review previous year audit records and general audit records

This is the first year that ABC went into production and business, so there was noprevious year data to compare and reconcile But auditors know that ABC is amanufacturing enterprise and has just been established, so the number of transactions

to record large fixed assets should be considered and noted in the audit process

 Identify ownership and related parties

ABC Company is a 100% Korean-owned company Related company is ABCDCompany limited which is parent company having the head office in Korea Fixedassets involved in capital contribution are transferred or allocated mainly from theKorean side on the basis of mutual agreement The purchase or new investment offixed assets of great value must be agreed by the majority of the members of theBoard of Directors

 Understand about applied accounting system

- Applied accounting regime: Circular No 200/2014 / TT-BTC dated 12/22/2014 ofthe Ministry of Finance

- Accounting year: Starting on January 1 and ending on December 31 everyyear

- 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:

A OBJECTIVES

Acquiring knowledge of the environment and operating environment to identify andunderstand the events, transactions and business practices of the Holdings has a materialimpact on the financial statements, thereby identifying the risks of material misstatement.fraudulent or misleading

B MAIN CONTENT

1 Understand the operating environment and external factors affecting the business

I.2 The issues of the business sector and business trends

VIETNAM AUDITING AND VALUATION

COMPANY LIMITED – HANOI BRANCH

Name of client: ABC Company Limited

Closing book date: 31/12/2018

Content: Understand customers and working

General information about the industry in which the business is operating and its industrytrends include, but are not limited to, the following information:

Market and competition Market: In the current period of information

technology boom, the market of electronicand telecommunications equipment hasbeen constantly developing with a variety ofproducts, and the needs of people areincreasing This is a favorable condition forcompanies producing electronic components

to develop products and expand their scaleand ABC Company Limited is one of them.Price competition: competition from thesame industry

Cyclical or seasonal activities No

Technology related to the unit's products,

changes in production technology (if any)

No change

Input supply for industry and price This is an industry with stable input prices

and abundant supply

2.2 Legal factor

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 dated12/22/2014 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

Enterprise lawInvestment law

The policies issued by the State are

affecting the business activities of

Tariffs, barriers to trade: no "

Tax regulations Value added tax (VAT): Enterprises shall

declare and calculate VAT under theguidance of the current tax law in Vietnam.Corporate Income Tax: The determination

of corporate income tax is based on currenttax regulations However, these regulationsvary from time to time and the final