FACULTY OF ACCOUNTING AND AUDITING _______________ THESIS AUDIT PROCEDURES FOR FIXED ASSETS BY PWC VIETNAM AT EHP VIETNAM LIMITED COMPANY LECTURER : Ms... FACULTY OF ACCOUNTING AND
Research rationales
Auditing has significantly evolved over the centuries, transforming from a singular task into a multifaceted discipline that spans various fields This progression reflects a broader trend towards specialization, with Vietnam's auditing sector following suit The rise of numerous accounting firms, alongside the implementation of the Law on Auditing and 36 Auditing Standards, has propelled the development of Vietnam's auditing industry, enabling it to integrate more effectively within regional and global markets.
As economies develop and businesses expand, companies prioritize enhancing competitiveness and adapting to economic fluctuations Fixed assets constitute a significant portion of total assets, playing a crucial role in the sustainability and growth of organizations Although fixed asset transactions are infrequent within a single accounting period, their substantial value and slow capital turnover necessitate thorough examination during annual audits For auditing firms, effective investment audits enhance overall audit quality and efficiency, while providing clients with reliable insights to identify shortcomings in accounting practices and fixed asset management, ultimately boosting production and business performance.
Being aware of the importance of the Fixed Assets item, the writer chose the topic:
"Audit procedures for fixed assets by PwC Vietnam at EHP Vietnam Limited Company” as a research topic for my graduation thesis.
Research subjects
● Illustrating the general information about EHP Vietnam Co, Ltd
● Evaluating the auditing process of fixed assets by PwC Vietnam Co., Ltd for EHP
● Providing solutions to enhance and complete the audit procedures of fixed assets by
PwC Vietnam Co., Ltd for EHP Vietnam Co, Ltd.
Research objectives
● Description and observation of the FAs auditing process at PwC Vietnam Co., Ltd
● Illustrating fixed assets auditing process at EHP Vietnam Co, Ltd
● Providing comments and recommendations on the fixed assets auditing process at
PwC Vietnam Co., Ltd to improve process quality.
Research methods
● Observing the workings of the client's company combined with the audit procedures carried out by the auditors
● Gathering the required information by interviewing employees at the client's company or by speaking to the auditors on the audit team about related topics
● Directly participating in the audit at the client's company, reading the client's file and studying the company's audit file
● Referencing to PwC's documents on the fixed asset assessment process.
Research scope and limitations
This article explores the fixed asset auditing cycle conducted by PwC Vietnam, focusing on specific documents related to the EHP's fixed assets during the financial statement audit period ending December 31, 2020.
Limited practice and research time hinder a comprehensive understanding of the research topic Additionally, PwC Vietnam enforces stringent requirements for client information security documentation.
Co., Ltd Therefore, all the data, information, evidence and samples in this thesis are for reference and opinion polling only This inevitably reduces the reality of the subject.
Research structure
The structure of this procedure is as follows:
Chapter 1: Introduction about PwC Vietnam Limited Company
Chapter 2: General information about EHP Vietnam Limited Company
Chapter 3: Audit procedures for fixed assets by PwC Vietnam at EHP Vietnam Co, Ltd Chapter 4: Comments and Recommendations
INTRODUCTION ABOUT PWC VIETNAM LIMITED COMPANY
Company profile
1.1.1 History of establishment and development of PwC
The company was formed in 1998 through the merger of Coopers & Lybrand and Price Waterhouse under the PricewaterhouseCoopers name
Coopers & Lybrand was established in 1957 through the merger of Cooper Brothers, founded in London in 1854 by William Cooper, and the American firms Lybrand, Ross Brothers, and Montgomery, along with Canada's McDonald, Currie and Co In 1980, the firm enhanced its capabilities by acquiring Cork Gully, a prominent leader in bankruptcy services.
Founded in 1874, Price Waterhouse gained prominence as a leading bookkeeping firm in 1890 with the growth of trade between England and the USA The company experienced rapid expansion during this period In September 2000, Price Waterhouse rebranded itself as PwC to enhance its market presence.
With nearly 20 years of experience, PwC has evolved through mergers and collaborations with other major firms to deliver high-quality assurance, tax, and advisory services Today, PwC operates in 158 countries and employs over 236,000 professionals, establishing itself as a leading global professional services network The firm is dedicated to helping organizations and individuals achieve their desired value through its comprehensive range of quality assurance, tax, and advisory solutions.
There are some successes of PwC:
● As of FY2021, PwC provided services to 84% of Global Fortune 500 companies
● 90,273 employees joined PwC companies worldwide in 2021
● For the year ended June 30, 2021, PwC's gross revenues were $45 billion
For the fiscal year ending June 30, 2021, PwC reported global gross revenues of $45 billion, marking a 2.0% increase in local currency and a 9% rise in US dollars compared to $43 billion in fiscal 2020 This growth reflects a strong performance despite the challenges posed by the global economy during the year.
PwC is dedicated to delivering high-quality services and products that foster trust and drive sustainable outcomes for clients amidst a rapidly evolving landscape Despite the challenges posed by the COVID-19 pandemic and subsequent economic downturn, regional growth in FY21 demonstrated resilience, with all major regions and countries experiencing a rebound as the year advanced.
● Sales in Europe, EMEA increased by 2.0% Sales in the UK increased by 2.0%, in the Middle East by 4.8% and in Turkey sales increased very strongly by 30.0% Across
Africa, our business was particularly impacted by the pandemic, with revenue down 3.6% year-on-year
In the Asia-Pacific region, sales experienced a 6.2% increase, largely driven by South Korea's impressive 12.3% year-over-year growth Following a difficult fiscal year in 2020, where revenue declined by 1.2%, PwC Australia rebounded in FY21, achieving a 2.4% rise in revenue.
Revenue in the Americas remained stable, with a notable decline in disbursements and expenses transferred to clients This stagnation particularly affected PwC US, which reported flat revenue year-over-year, amid challenging economic conditions, especially in the Middle region.
South America Revenue was more dynamic at PwC Canada, where it rose 5.1%
Aggregated revenues of PwC firms by geographic region (US$ millions)
FY21 at FY21 ex rates
FY20 at FY20 ex rates
% change at constant exchange rates
Table 1 Total revenues of PwC by region (US$ millions)
PwC Vietnam, established in 1994 with headquarters in Ho Chi Minh City and a branch in Hanoi, boasts a team of over 1,000 skilled professionals with extensive industry knowledge We focus on strategically important areas such as ESG, digital transformation, mergers and acquisitions, and deal value creation, ensuring we provide certainty beyond the close Our strong relationships with key government departments, financial institutions, state-owned enterprises, and private companies enable us to effectively address our clients' needs, regardless of their business location.
General information of PwC Vietnam
Company’s name PWC VIETNAM LIMITED COMPANY
Address No 29, Le Duan Street, Ben Nghe Ward, District 1, Ho Chi
Type of business Sole member Company Limited
Legal representative Ms Dinh Thi Quynh Van - CEO
Table 1.1: Information about PwC Vietnam
At PwC, fostering trust in society and addressing significant challenges are paramount PwC Vietnam is dedicated to providing unique value through a network of technology innovators focused on delivering exceptional customer service experiences, from strategy development to execution and collaboration It is essential to enhance transparency, credibility, and consistency in the business operations of client companies.
Organizational structure
To enhance operational efficiency, PwC Co., Ltd established a clear organizational chart that delineates functional departments, with the general manager positioned at the top of the management hierarchy.
Figure 1.2 Organization chart of PwC Vietnam Co., Ltd
During fieldwork, a team typically consists of a partner, a manager, a senior, one to two associates, and one to two interns, with team members randomly selected by Ms Nguyen Thi Kim Ngan Employees remain assigned to their group until the audit is fully completed Once assignments are made, Ms Ngan utilizes the Aura Platinum online application, allowing employees to easily access their designated roles and team members within the system.
The senior holds the authority to delegate tasks to both assistants and inmates Before commencing fieldwork, the senior distributes the assignments, along with the PBC and prior documentation, via mail.
As part of their responsibilities, interns in the accounting field prepare work papers for review by staff accountants They are tasked with handling various working documents, including cash and cash equivalents, receivables and payables, fixed assets, revenue, financial income and expenses, other assets, equity, and operating expenses Additionally, interns create hard copy documents for each engagement, ensuring thorough documentation and compliance with accounting standards.
Service provided
GENERAL INFORMATION ABOUT EHP VIETNAM LIMITED
Development and achievement of EHP Vietnam
Investment License No 016/GPDC1-KCN-VS
The Company has undergone multiple amendments to its investment license and investment registration certificate, with the latest update being Investment Registration Certificate No 2187939366, issued on December 21, 2019 These documents, issued by the Management Board of Vietnam - Tien Son Industrial Park, are valid for a period of 50 years from the date of the original investment licenses.
The Company's enterprise registration certificate, most recently amended under No 3900309369 on September 21, 2021, has undergone several updates These certificates and their revisions are issued by the Planning and Investment Department of Bac Ninh Province.
Legal representative Mr Yoru Toshuda Chairman
Registered Office Tien Son Industrial Park,
Hoan Son Ward, Tien Du District, Bac Ninh Province,
Auditor PwC Vietnam Limited Company
Table 2.1: Information about EHP Vietnam Limited Company
EHP Vietnam Co., Ltd., established in 1998, is a leading Logistic Real Estate Company specializing in office leasing, housing construction, and building investments With a charter capital of VND 57,512,000,000, the company operates under the leadership of General Director Mr Yoru Toshuda Notably, EHPT contributes to 70% of the company's total turnover.
EHP Vietnam has consistently strengthened its status as a top manufacturer of electronic components globally, employing over 2,000 staff members Since 2016, the company has been recognized among the top 1,000 brokerages, highlighting its significant impact in the industry.
Organizational structure of EHP Vietnam Co, Ltd
Figure 2.1: Organizational structure of EHP Vietnam Co, Ltd
EHP Vietnam Co, Ltd has an organizational structure structured according to a direct leadership model, with top-down decentralization, from management to employees
In addition, the system of closely related departments is divided into 3 main departments,
Effective management within a company is essential for optimizing operations across various departments such as Accounting, Human Resources, Business Assistance, and Operations, including Information Technology and Marketing Under the direct supervision of the board of directors, this structured approach clearly delineates roles, responsibilities, and authorities, fostering flexibility that enhances internal control activities Consequently, this leads to increased efficiency and a smoother business operation.
The Board of Directors plays a crucial role in managing the business by overseeing operations, addressing departmental issues, and ensuring effective corporate governance They are responsible for strategic management, which includes developing strategies, creating actionable plans, and providing clear instructions to meet established objectives Additionally, the Board guides the formulation and execution of business plans to drive organizational success.
The Marketing department plays a crucial role in brand and product development, enabling companies to thrive and establish a competitive edge in the marketplace Acting as a vital link between the company and the external market, it connects products with consumers, effectively promoting the company's offerings to a broad audience.
Operations plays a crucial role in supplying the board with essential information and documentation, while also overseeing the workshop's production process This department ensures that customer contracts are accurate, delivered on time, and meet the required quality standards By maintaining a systematic and organized approach, Operations contributes to the overall consistency and efficiency of the company's operations.
The Information Technology Department is responsible for leading the information and data integrity of the organization and its departments, including all information technology functions of EHP Vietnam.
Organization of accounting work in EHP Vietnam Co, Ltd
Chief Financial Officer Chief Accountant
Figure 2.2: Accounting department structure of EHP Vietnam Co, Ltd
The Chief Financial Officer (CFO) plays a crucial role in a company's financial landscape, bearing legal responsibility alongside the General Manager for key financial decisions This includes overseeing the organization and governance of financial operations, monitoring cash flow, and managing financial planning and risk Additionally, the CFO is tasked with maintaining accurate financial records and ensuring comprehensive financial reporting.
The Chief Accountant plays a crucial role in supporting the CFO by overseeing the accounting operations of the unit This position involves supervising and guiding the accounting staff to ensure effective performance of their duties Additionally, the Chief Accountant is tasked with organizing and enforcing a robust financial accounting reporting system, accurately determining the company's business results, and ensuring the reliability of these financial reports.
- General Accountant: Responsible for the chief accountant, collecting, synthesizing, processing, checking and recording economic transactions occurring in the company, responsible for summarizing detailed data in the accounting books
A Tax Accountant plays a crucial role as the chief accountant, overseeing the preparation of monthly and quarterly tax reports while ensuring timely tax payments for the company They are also responsible for compiling year-end tax reports, including Corporate Income Tax (CIT) and Personal Income Tax (PIT) filings, and directly liaising with tax authorities to address any related issues.
- Warehouse Accountant: Responsible before the chief accountant, perform stock related tasks such as tracking goods, importing and exporting goods, preparing invoices and documents, comparing invoices and documents with data
- Asociate Accountant: Completing the assigned work, the main task is to assist the head of the accounting team in areas such as taxes, expenses, rent, cash, sales, purchases
The Company's consolidated financial statements are prepared in compliance with the Vietnamese Enterprise Accounting System and the Vietnamese Accounting Standards (VAS) established by the Ministry of Finance, and are presented in Vietnamese Dong (VND).
- Accounting period: From 1.1 to the year-ended 31.12
- Method of calculating the value added tax according to the deduction method
- The method of recording fixed assets is based on the acquisition cost method and is depreciated on a straight-line basis
- Currency used in accounting records: Vietnam Dong
AUDIT PROCEDURES FOR FIXED ASSETS BY PWC VIETNAM
Audit planning stage
3.1.1 Analysing and reviewing of the internal control system
Understanding control risk is crucial for auditors as it highlights key areas that significantly influence the audit process Evaluating the internal control system is essential during the initial audit phase, enabling auditors to effectively plan their approach A thorough comprehension of this system allows auditors to determine the timing, scope, and scale of substantive tests necessary for a successful audit.
To assess the client's internal control system, the auditor must evaluate the control environment and accounting processes This includes reviewing the entity's accounting policies for fixed assets and the authority regarding asset approvals throughout the year Additionally, the auditor compares these practices with the company's articles of association to ensure compliance with regulations concerning the purchase, liquidation, and sale of fixed assets.
At the same time, the auditor skimmed the company's BS, FSs and detailed book of FAs
Analysing and reviewing of the internal control system
Assessing risks and designing the audit implementation plan
Assessing the internal control system
In 2020, a comprehensive substantive test was conducted to analyze asset movements throughout the year This process involved evaluating the design and implementation of the company's key control processes, ultimately leading to informed final assessments.
The initial evaluation of EHP Vietnam's internal control system reveals that the company's accounting practices are well-structured and organized Responsibilities within the billing system are clearly defined for each individual The management and control procedures concerning fixed assets are comprehensive and stringent, enhancing the efficiency of fixed asset utilization while facilitating the prevention and detection of significant errors Consequently, the auditor assesses the control risk associated with fixed assets as medium.
Client’s name: EHP Vietnam Co., Ltd
ASSESSING THE CYCLE OF FIXED ASSETS
Assignee LMT Reviewer 1 VAT Reviewer 2
(1) Identify and understand transactions and events related to fixed assets
(2) Evaluation of the design and implementation of key control procedures for FAs
(3) Decide whether to conduct an audit of the internal control system;
(4) Design appropriate and effective substantive testing procedures
The main types of fixed assets of the enterprise:
+ Tangible fixed assets: Houses, architectural objects; devices; transmission means of transport; Other TAs
+ Intangible fixed assets: Land use rights; computer software
Proportion of fixed assets in total assets of the enterprise:
Fixed assets account for 18.16% of total assets of enterprises
+ TAs account for 13.8% of total assets of enterprises
The company's articles of association stipulate that any fixed asset acquisition must be accompanied by essential documentation, including the contract, purchase invoice, installation and commissioning report, acceptance and handover report, and payment documents Conversely, any reduction in assets due to liquidation or sale requires proper record-keeping and a contract Additionally, all increases or decreases in the company's assets must receive approval from authorized personnel, such as the director or chairman of the board of directors.
2 Understanding of accounting policies applied to fixed assets
- Accounting System: EHP Vietnam Limited applies the Company Accounting System issued pursuant to Decision 15/2006/QD-BTC of March 20, 2006 and applicable regulations from the Ministry of Finance
- Applicable accounting book form: General journal
- Accounting year: From January 1 to December 31 of the calendar year
Property, Plant, and Equipment (PPE) are recorded at their cost minus accumulated depreciation, which includes the purchase price and all costs necessary to prepare the asset for use This encompasses production, installation, and testing expenses for created assets Any expenditures after initial recognition are added to the asset's cost if they are expected to generate future economic benefits; otherwise, they are classified as production and operating costs for that period PPE is depreciated using the straight-line method over their estimated useful lives.
IAs and Amortization: Computer software is initially recognized upon purchase and amortized on a straight-line basis over its estimated useful life
Construction in progress (CIP) for production, leasing, administration, or other purposes is recorded at cost, encompassing service costs and related interest expenses as per the company's accounting policies The depreciation of these assets aligns with that of other assets, commencing once the asset is ready for use.
3 Description of the cycle “fixed assets and capital construction”
- Time of recording increase of fixed assets
Accounting is based on the records of assets transferred back determining the source of increase and tracking the recognition, calculation and deduction of depreciation and expenses
Units have purchasing needs sending a request to the material planning department
Material planning department based on business situation creating procurement proposal, consider procurement sources submitting to director for approval ->
Procurement department buy fixed assets transferring documents to accounting department as a basis accounting
4 Design and implementation review of key control procedures
Errors may occur Several key control procedures are in place to prevent and detect possible errors in a timely manner
4.1 Control objective: Recorded useful assets are real assets used by the company in the process of producing goods and services or managing the enterprise
4.1.1 Recognized useful assets are not actual assets used by the
Invoices for PPE purchases must be processed by staff who are independent of the
Control procedures have been company in the production of goods or services or in the administration of the company purchase, receipt and invoicing
Before payment, employees reconcile invoices with approved purchase orders and receipt reports, check the arithmetical accuracy of the invoices,
Periodic inventories of FAs are made and detailed figures are compared to details in the detailed ledger (both ways)
Approval from relevant authorities is essential for procurement, liquidation, and sale decisions Additionally, all records of financial activities must be thoroughly archived in the company's accounting department to ensure compliance with control objectives.
4.1.2 Finance lease assets are capitalized if they do not meet the capitalization criteria
Lease terms are discussed with accounting, management and the BODs, compared to finance lease accounting standards and analyzed, evaluated and approved in writing
Control procedures are properly designed to achieve control objectives
The company has no finance lease assets
4.2 Control objectives: All assets of the enterprise, including assets owned by the enterprise and assets leased to finance leases, must be recorded in the FSs
4.2.1 Owned or leased assets recognized as an expense, such as B
Repairs, rental costs for equipment, or that are not capitalized or not recorded
FAs must be periodically audited
Periodically, compare the detailed asset book with the ledger and the minutes of asset inventory
All assets are recorded in the
GL as soon as they are received and tagged for easy identification
Enterprises have regulations on the detailed classification of FAs in accordance with management requirements, and regulations on the order of recording transactions related to FAs
Control procedures are properly designed to achieve control objectives
Control procedures have been implement ed
4.2.2 Leased assets meet the criteria for recognition as finance lease assets but are classified and recognized as operating lease expense
The terms of the lease are discussed with the accounting department, the BODs, the BODs, compared to the accounting standards for finance leases, analyzed, evaluated and approved in writing
Control procedures are properly designed to achieve control objectives
The Company has no financial leases or operating leases
1 Are the control procedures for the fixed asset and capital construction cycle generally designed in accordance with the control objectives and implemented?
2 Is the operational effectiveness of key control procedures performed for this cycle? Yes [present the inspection on Form C510]
No [perform basic checks at a high level]
Table 3.1: WPS 2.1 - A450 -Understanding the fixed asset
Based on the assessment of inherent risk and control risk, the auditors estimate the level of detection risk according to the following matrix
Potential risk High Medium Low
Through the matrix table, the auditor expects the detection risk to be medium
The auditor establishes key audit objectives tailored to the client’s needs, forming the foundation for the audit program For EHP Vietnam Co., Ltd., the primary examination objectives are specifically defined to align with the company's unique circumstances.
Contributing to assisting the BODs in the completion of the financial statements FY2020 in accordance with applicable government regulations
Confirming the truthfulness, reasonableness and compliance of the financial statements for the year ended 31 December 2020
To enhance the quality of accounting practices at EHP Vietnam, it is essential to provide the Board of Directors and the General Assembly with accurate insights into the company's business performance for 2020 This includes identifying existing shortcomings and recommending effective corrective actions to improve the overall accounting processes within the organization.
The primary objective of the audit concerning fixed assets (FAs) is to furnish the Board of Directors (BODs) with insights into the management and utilization of these assets Additionally, the audit aims to identify and rectify any deficiencies in the accounting practices related to FAs, ensuring effective oversight and improved financial reporting within the company.
3.1.3 Preparing detailed audit plan for Fixed assets
Preliminary analysis of FAs item
The audit of EHP Vietnam Co., Ltd revealed that the company's fixed assets (FAs) experienced a net increase of VND 33,759,897,493 over the year, despite a decrease of VND 811,307,540 This growth in FAs was primarily attributed to the acquisition of new machinery and additional fixed assets, while the decline resulted from the liquidation of outdated and unused machinery and equipment.
The preliminary analysis of fixed assets assists auditors in pinpointing essential audit procedures, offers a comprehensive overview of financial statements, and highlights potential risk areas.
Beginning balance Occurred in the period Ending balance
Debit Credit Debit Credit Debit Credit
Table 3.3: Excerpt from the balance sheet arising before the audit of EHP Vietnam Co., Ltd
The auditor tailors specific audit objectives to align with the overall audit goal and the unique organizational structure of each client For EHP Vietnam Co., Ltd., the audit objectives for financial audits (FAs) are detailed in the accompanying table.
General Audit Objectives Auditing objectives specific to the FAs section
1.Existence Do TAs and other fixed assets really exist?
2 Right and Obligations Does the FAs belong to the company or does the enterprise use the FAs in its operations?
To ensure completeness, all elements included in financial assets (FAs) must meet established criteria, with a comprehensive accounting of their liquidation, sale, transfer, and any associated benefits or expenses related to their operations.
4.Accuracy Depreciation determination and recording in accounting books must be adequate for all assets as prescribed
5.Presentation and Disclosure The value recorded in the historical cost of the FAs must be accurate and must not include elements that must be recorded in expenses
6 Rationality Is the depreciation of FAs accurately determined in accordance with current regulations?
7 Consistency Are FAs classified and described correctly? (In terms of cost, depreciation and NRV)
Table 3.4: Objectives of audit of fixed assets performed by PwC
3.1.4 Material assessment for the fixed asset item
Audit implementation stage
EHP Vietnam executes the audit in alignment with the established audit plan, following a systematic sequence of work steps The statutory audit phase, carried out by PwC, encompasses several key steps essential for thorough financial analysis.
- Checking the internal control system for FAs
- Performing audit procedures for FAs
3.2.1 Check the internal control system for the fixed asset item
Before evaluating the internal control system for fixed assets (FAs) at EHP Vietnam Co., Ltd., the auditor conducted a thorough investigation of the company's purchasing and management processes This involved reviewing internal control documentation and interviewing key personnel, as well as utilizing professional tools like questionnaires for accountants and the board of directors Through this comprehensive assessment, the auditor concluded that the company's internal control system is effectively designed to ensure controllability and maintain the integrity and effectiveness of operations.
The auditor assesses the effectiveness of the internal control system for financial assets, focusing on its ability to prevent and detect significant errors while managing medium-level auditing risks, supported by decades of reliable evidence It is essential for the auditor to expand control testing while keeping it at an appropriate level, integrating it with content testing as necessary.
Client’s name: EHP Vietnam Co., Ltd
Assignee LQM Reviewer 1 VAT Reviewer 2
The auditor requested EHP Vietnam to provide photocopies of essential documents, including the client's fixed assets procurement policy, economic contracts, payment vouchers, acceptance and handover minutes, period-end fixed asset inventory minutes, amortization tables for the client's fixed assets, and details for accounts 213 and 214.
At the same time, auditors use pre-built questionnaires combined with external questions to collect information related to the management and use of the customer’s assets
Questionnaire about internal control system
1 Is the detailed book of tangible fixed assets prepared with sufficient information at the request of the company?
2 Are tangible fixed assets increased and decreased during the year recorded in a timely manner and with all necessary documents?
3 Is the inventory of tangible fixed assets carried out periodically and compared with the detailed book of tangible fixed assets?
4 Are the units' tangible fixed assets allowed to open detailed tracking records for each asset?
5 Does the unit keep track of assets that have been fully depreciated but are still in use, even with assets that have been written off?
6 Does the unit keep track of records for tangible fixed assets that are in use, not in use, pending liquidation and not yet in use?
7 Is it possible to identify tangible fixed assets for comparison with the detailed book of TAs? Is there a management code for all assets in the company?
8 Does the company buy insurance against theft, fire damage or not?
Table 3.7: WPS 2.4 - C520 - Check Internal Control System
3.2.2 Performing audit procedures for Fixed assets
In carrying out the procedures for analyzing FAs, the auditor collects documents such as: BS, emerging BS, GL of account 211… to tabulate aggregated data
The auditor analyzes the collected data to evaluate the annual fluctuations in value, focusing on acquisition costs and depreciation, ensuring all changes are accurately documented and aligned with the established plan.
In 2020, the auditor noted a significant increase in the company's fixed assets (FAs) compared to 2019, with total assets (TAs) rising by VND 18,610,391,390, reflecting a growth of 27.66%, while intangible assets (IAs) remained unchanged.
The increase in depreciation of property, plant, and equipment (PPE) is attributed to the company's ongoing depreciation of fixed assets (FAs) Throughout the year, the company liquidated several FAs, resulting in a reduction of its asset base Concurrently, the company acquired new FAs to effectively monitor and manage the write-off of these assets.
A comprehensive understanding of the factors influencing fluctuations in financial assets (FAs) enables auditors to establish effective strategies and implement thorough inspection procedures Identifying assets that fall outside established criteria or are of high value allows for immediate recognition and processing of goods, thereby reducing risks throughout the audit process.
Property type Depreciation period (years)
Table 3.8: Registration table of depreciation of FAs of EHP Vietnam Co., Ltd in 2020
Ref to WPS 2.5 - D741 - Analysis of volatility of FAs
Client’s name: EHP Vietnam Co., Ltd
ANALYSIS OF CHANGE OF FIXED
Note: - Having compared the opening balance with the audited report, there is no difference in the working papers of the year's auditors
- Reconciled the ending balance with the detailed books of Accounts 211, 213,
214, Balance Sheet, and Financial Statements with no difference
Conclude: Compared to 2012, in 2020 the company's FAs had a big change due to the company's expansion of production and business scale
Table 3.9: WPS 2.5 - D741 - Analysis of volatility of FAs
The detailed inspection procedures performed by PwC's auditors for EHP Vietnam for the year ended 31 December 2020 are following:
Checking the existence of fixed assets
Checking details of arising transactions
Checking details of fixed asset depreciation calculation
Checking the completeness and existence of FAs
As of December 31, 2020, the auditor did not directly participate in the inventory of the company's fixed assets Instead, the auditor conducted various alternative audit procedures, including observing the assets, examining asset records, and interviewing employees to confirm the existence of valuable items such as air conditioners, computers, projectors, cars, kitchen cabinets, and accounting software.
The auditor conducts a thorough comparison between the entity's fixed asset (FA) inventory register and the detailed FA accounts in the financial statements (FSs) to verify ownership To confirm that the fixed assets genuinely belong to the company, the auditor employs various measures to reconcile the accounting records with the books This analysis was particularly evident during the detailed audit of the changes in fixed assets for the year 2020.
After performing the above procedures, the auditor has obtained evidence concluding the existence of the assets of the company
Client’s name: EHP Vietnam Co., Ltd
AND EXISTING OF FIXED ASSETS
A/c Account name Per PwC Per book Dif Reason
As of December 31, 2020, the auditor was prohibited from directly observing the inventory of the EHP's fixed assets To verify the existence of these assets, the auditor employed alternative procedures, including conducting observations, reviewing records and documents, and interviewing company employees.
Table 3.10: WPS 2.6 - D742 - Checking the existence of FAs
Checking details of arising transactions
The auditor compiles a summary of fixed assets (FAs) that includes the opening balance, changes during the period, ending cost, accumulated depreciation, salvage value, and any profit or loss from liquidations This process follows the proper classification of FAs and involves verifying the arithmetic accuracy of the investment summary table through comparison.
GL of FAs, depreciation of FAs, financial statements
Auditor collects necessary documents to synthesize and compare data Documents Auditor requires EHP Vietnam to provide:
- Soft and hard copies of the balance sheet
- Calculation of depreciation of FAs
- The FSs of this year and the previous year have been audited
- Detailed book of increase, decrease of FAs, depreciation of FAs
The auditor reviews the opening balance sheet against the prior year's audited financial statements for company EH, ensuring accurate transfer of the opening balances They assess the status and depreciation of fixed assets at the interim period's end, meticulously examining detailed accounts and account books to confirm the fair and accurate representation of data from the general ledger to the financial statements.
Through inspection, the auditor found that the balances of the previous period were adjusted appropriately and recorded correctly, there was no difference in the book-adding and transferring
Client’s name: EHP Vietnam Co., Ltd
SUMMARY SHEET OF FIXED ASSETS
Opening Balanec Occurred in the period Ending Balance
Debit Credit Debit Credit Debit Credit
Table 3.11: WPS 2.7- D743 – Summary of Fixed assets
After thoroughly analyzing the aggregated data to assess the balance of fixed assets (FAs) and their underlying causes, the auditor proceeded to review the relevant receipts and documents that pertain to the fluctuations in FAs This included scrutinizing journal entries, accounting records, and transfer procedures associated with the increases and decreases in FAs The auditor's subsequent step involves compiling a comprehensive table that outlines the changes in FAs.
The auditor analyzed the fluctuations in fixed assets (FAs) and found that the historical cost of property, plant, and equipment rose due to new acquisitions while declining from liquidations For EH Company, the significant changes in FAs throughout the year, coupled with a limited number of assets, prompted the auditor to perform a comprehensive 100% audit of all asset transactions.
Check details of operations to increase FAs
Finishing the audit of FAs
Following the comprehensive inspection procedures for fixed assets, from general to detailed evaluations, auditors compile the findings related to fixed asset operations and address any outstanding issues to finalize the Work Paper System (WPS) Based on the gathered evidence, auditors offer insights and recommendations regarding the performance of the fixed assets, while also implementing necessary corrections.
The auditor's comments and recommendations regarding the audit of EHP Vietnam Co., Ltd.'s financial statements are detailed in the auditor's work paper summary (WPS) The auditor concluded that the financial statements are free from material misstatement.
The auditor reviews and references the working papers, subsequently storing them in the shared working documents Following this, the audit team leader assesses the materials to form the foundation for the audit report and management letter.
(See more in Appendix 2.5: Excerpts from notes to financial statements of EHP Company after the audit of FAs, Appendix 2.6: Extract from management letter of FAs)
COMMENTS AND RECOMMENDATIONS
Benefits
PwC Vietnam successfully implemented the Model Audit Scheme established by VACPA under Resolution No 1089/QD – VACPA, dated October 1, 2010 This initiative facilitated the examination and review of audit records across all management levels, enhancing audit quality while reducing both time and costs associated with the audit process.
PwC Vietnam conducts preliminary analysis procedures on financial statements during audits, including those of EHP Vietnam Co., Ltd., to identify areas of focus and pinpoint at-risk items that may lead to material misstatements in the financial statements.
The audit team leader assigns tasks scientifically based on team members' performance, often designating simpler tasks to interns Typically, related areas of examination, such as cash and cash equivalents, investments, financing activity proceeds, operating costs, inventories, and cost of goods sold, are handled by a single examiner For traditional clients, the firm frequently retains auditors who conducted previous audits, enabling a smoother understanding of the company's operations.
During the audit, PwC's auditors adhered to a strict mandate outlined in the company's audit program They employed flexible evidence-gathering methods, including examining client-provided documents, observing relevant facts, interviewing key individuals, and obtaining confirmations from third parties.
- Assessors with experience and competence not only use examination methods, but often use judgment and experience to express their opinions and evaluations of the subject matter examined
Auditors meticulously prepare detailed working papers that are scientifically structured and easy to comprehend, aligning with the specific audit objectives for each item These working papers and the accompanying audit evidence are evaluated in accordance with company regulations, ensuring a thorough and compliant auditing process.
- Quality control at PwC Vietnam is strictly performed in five steps, so the audit results are always highly effective
- The audit report and the management letter are carefully checked by the board before they are officially released, so that the audit quality is always guaranteed
PwC systematically organizes and retains audit evidence, making it essential to consult auditors for preparing the audit report This approach also facilitates effective inspection and oversight of the company's audit activities by the board of directors.
Limitations and recommendations
Auditors face significant challenges in gathering comprehensive information about clients due to time constraints and the flow of information during the audit process Before visiting the client's site, the Board of Directors (BODs) at PwC engage in preliminary discussions regarding the client's business circumstances However, since the BOD members are not always the auditors conducting the on-site audit, the ability to collect detailed client information remains restricted.
The company's process of gathering essential client information primarily involves collecting documents like the business registration certificate and company incorporation license Limited interaction with the customer's Board of Directors hinders comprehensive understanding Additionally, during audits, time constraints prevent auditors from directly observing business activities, resulting in lower objectivity based on the collected information.
→ The writer recommends using several sampling methods at this stage In addition to the auditor's judgment and professional experience, PwC should refer to the following sampling methods:
Auditors can streamline the sample selection process by utilizing software that allows them to input essential parameters, such as the desired number of samples from a sequence of invoices or consecutive receipts This automated system efficiently generates the necessary samples for detailed examination, enhancing the overall auditing process.
Systematic sampling involves inspectors selecting items at regular intervals from a randomly chosen starting point The interval is determined by dividing the total population size by the desired sample size, ensuring a structured approach to sampling.
- The assessment of the internal control system based on a common questionnaire applies to all customers regardless of the individual type of business of each client
Analytical procedures in auditing have inherent limitations, as auditors frequently prefer detailed testing over developing these procedures Often, the analysis is not documented within the audit file and relies heavily on the auditor's predictions, which restricts the control and evaluation of the analytical processes.
→ At this stage, the writer has some recommendations:
- Completion of the assessment and internal control system for FAs
Auditors must thoroughly assess the internal control system to minimize detailed testing procedures This involves utilizing questionnaires and customer surveys while considering the management of financial assets and the specific nature of each client's business A comprehensive review of the client's books and documents is essential to evaluate the implementation of procedures and regulations within the organization By doing so, auditors can achieve a precise evaluation of the internal control system, allowing them to tailor detailed inspection procedures effectively and optimize audit efficiency.
- Perform alternative audit procedures to prove the existence of FAs owned by customers:
If the auditor is unable to observe the inventory of fixed assets (FAs) as of December 31, they must conduct additional audit procedures This includes directly observing the FAs during the audit, interviewing company employees and management, and reviewing the use of FAs Furthermore, the auditor should document the results of these additional procedures in the audit file to support their conclusions regarding the fixed asset item.
- Presenting and storing auditors’ working papers
During the audit process, auditors utilize computers for efficient and precise calculations; however, it is essential for them to document these results on the working paper form in compliance with company regulations and ensure they are recorded in the audit file.
Fixed assets (FAs) are valuable items with long-term utility, making their audit results crucial not only for the current audit year but also for years to come throughout their useful life Accurate auditing requires auditors to possess a comprehensive understanding of the nature of FAs With the rapid advancement of technology and the continuous modernization of equipment and machinery, auditors face the challenge of enhancing their expertise while staying updated on the diverse characteristics of both tangible and intangible FAs across various industries and clients.
Despite PwC Vietnam's stringent regulations for audit quality control, certain audit files, such as those for EHP Vietnam Co., Ltd., were only reviewed at the group level after the audit was finalized.
After completing the audit of fixed assets, auditors should meticulously compile detailed working papers and collected audit evidence in compliance with company regulations It is essential for auditors to thoroughly summarize the audit findings related to fixed assets, clearly articulating any recommendations and specifying any necessary adjustments.
Vietnam's accounting industry, led by PwC Vietnam Co., Ltd., has experienced significant growth, enhancing its quality and solidifying its market position and reputation amidst the robust development of the domestic economy.
During the internship at PwC Vietnam Co., Ltd, the author gained insights into the company's founding history, organizational structure, and key business areas, while actively participating in the auditing process Engaging with the audit team allowed the author to perform basic audit tasks and acquire valuable knowledge, soft skills, and experiences from team members, all of which are essential for future career development.
The author reflects on the practical knowledge gained from participating in client audits, contrasting it with theoretical learning and experiences from other large firms This article provides an overview of the asset examination process conducted by PwC Vietnam Co., Ltd., illustrated through a typical client example It encourages readers to share their insights and evaluations of the review process From the perspective of an intern, the article also suggests several strategies to enhance the company's audit procedures.
Despite the author's limited qualifications and practical experience, as well as a brief internship, the article has several shortcomings The author welcomes feedback and suggestions from teachers and auditors to improve the work before concluding the discussion.