BANKING ACADEMY OF VIETNAM ADVANCED PROGRAM --- GRADUATION THESIS IMPROVING AUDIT PROCEDURES OF FIXED ASSETS IN AN AUDIT OF FINANCIAL STATEMENTS AT DELOITTE VIETNAM COMPANY LIMITED
The necessity of the topic
The external audit industry has seen significant growth in recent years, driven by the increasing demand for transparent and reliable financial information from investors and business owners This industry plays a crucial role in enhancing information transparency and improving the management efficiency and productivity of businesses, enabling stakeholders to make informed decisions that significantly impact various aspects of their operations.
To attract investors and stakeholders, many companies have resorted to fraud and accounting misconduct, manipulating financial statements through exaggeration and false claims Common fraudulent practices involving fixed assets include intentional miscalculations of depreciation, as these assets are crucial indicators of a company's production capacity Maintaining stable fixed asset resources is essential for businesses to thrive, enabling them to expand production and enhance financial security during economic fluctuations.
Accounting entries for fixed assets may occur less frequently than other accounts, yet they hold significant value and greatly influence a business's resources Fixed assets represent a substantial portion of financial statements, making any errors in this area potentially detrimental to accuracy and transparency Therefore, auditing fixed asset accounts is crucial in any audit engagement By enhancing the quality of fixed asset audit procedures, auditors can improve overall audit quality, identify potential accounting misconduct, and strengthen fixed asset management.
Having acknowledged the importance of fixed assets to a business’s financial health, the Author has chosen the topic: “IMPROVING AUDIT PROCEDURES
The graduation thesis titled "Audit of Fixed Assets in Financial Statements at Deloitte Vietnam Company Limited" aims to evaluate the existing audit processes for fixed assets and offers recommendations to enhance these procedures.
Literature review
Deloitte Vietnam Company Limited (DVN) is a respected independent audit firm, and fixed assets play a crucial role in the balance sheet Numerous studies have examined DVN's audit procedures, particularly concerning fixed assets in financial statement audits These studies can be divided into two primary categories: the first focuses on the quality of external audits conducted by the Big 4 firms in Vietnam (Deloitte, PwC, E&Y, KPMG) and offers recommendations for improving qualitative assessments The second category delves into enhancing audit procedures for specific accounts.
Professor NH Tien et al (2019) highlight the importance of auditor independence in ensuring the quality of auditing services, particularly within the context of the Big 4 firms in Vietnam The study suggests enhancements to the independence of local audit companies, noting that Deloitte Vietnam adheres to policies developed by Deloitte Global, which align with the IESBA’s code of ethics and exceed local regulations This adherence contributes to a high level of audit quality at Deloitte Vietnam, supported by experienced and skilled professionals Additionally, staff mobility within the global network ensures consistent quality across various units The benefits of being part of international audit organizations include access to modern equipment, comprehensive training programs, and robust service quality controls As a result, Deloitte Vietnam has maintained its position as a market leader for nearly 30 years.
Several graduation theses have been conducted on the audit of specific accounts within financial statement audits at the Banking Academy of Vietnam Notable works include "Improving the Audit Evidence Obtain Process in an Audit of Financial Statements at Deloitte Vietnam Limited" by Tien, M.T.T (2018) and "Improving Audit Procedures of Operating Expenses in an Audit of Financial Statements at Deloitte Vietnam Limited" by Hau, H.T.T (2018).
“Improving audit procedures of financial income and financial expense in an audit of financial statements at Deloitte Vietnam Limited” by Van, D.T.L (2018) and
The study "Improving Audit Procedures of Receivables in an Audit of Financial Statements at Deloitte Vietnam Limited" by Quynh, T.T.H (2018) evaluates the audit processes for specific accounts within financial statement audits By comparing these practices to a theoretical framework, the research identifies recommendations aimed at enhancing the audit procedures at Deloitte Vietnam.
In conclusion, while prior research has focused on assurance quality at DVN and specific audit procedures, there has been a lack of studies assessing assurance quality in relation to audit procedures for fixed assets This paper aims to evaluate assurance quality at DVN by comparing audit methodologies with theoretical frameworks, ultimately providing recommendations to enhance the audit of fixed assets within financial statement audits at DVN.
Study Objective
The thesis focuses on researching the current audit procedures of fixed assets in a financial statement audit at Deloitte Vietnam Specific objects of the thesis include:
Firstly, the thesis explores theoretical backgrounds on audit procedures of fixed assets in financial statements audit
Secondly, the thesis briefly introduces Deloitte Vietnam and analyses the current audit procedures of fixed assets at Deloitte Vietnam
Based on the analyzed results, the thesis suggests and provides several recommendations for improvements in the audit procedures of fixed assets in financial statement audit at Deloitte Vietnam.
Scope of the study
The subject of the thesis includes audit procedures of fixed assets in an audit of financial statements at Deloitte Vietnam
The scope of the thesis regarding content is audit procedures of fixed assets and the arrangement of an audit engagement
The scope of the thesis regarding entity is at Deloitte Vietnam
The scope of the thesis regarding time is the data in the thesis is extracted in the period from 1 st January 2019 to 31 st December 2019.
Research methodology
The thesis employs the following research methods:
The thesis utilizes secondary data sourced from the curriculum, various research studies, magazines, and working documents from Deloitte Vietnam, while primary data is gathered through observation, interviews, and real-world scenarios.
+ The thesis uses summarization, reasoning and comparison method regarding audit procedures of fixed assets in an audit of financial statements.
Structure of the thesis
Excluding introduction, conclusion, references, the thesis includes three chapters:
Chapter 1: Theoretical backgrounds on audit procedures of fixed assets in an audit of financial statements
Chapter 2: Practice of audit procedures of fixed asset items in financial statements audit at Deloitte Vietnam Company Limited
Chapter 3: Recommendations for improvement of audit procedures of fixed assets in an audit of financial statements at Deloitte Vietnam Company Limited.
Theoretical backgrounds on audit procedures of fixed assets in an
Overview of fixed assets and accounting for fixed assets
1.1.1 Definitions and classification of fixed assets items
Fixed assets play a crucial role in a company's resources, representing a significant portion of the balance sheet and possessing a long-term useful life Under Vietnamese Accounting Standards (VAS), an asset must meet specific criteria to be classified as a fixed asset.
- 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
Among the aforementioned criteria, the criteria regarding historical cost has changed several times According to Circular 45/2013/TT-BTC issued on 25 April
According to the Ministry of Finance's 2013 regulations, specifically Clause 1, Article 3, the historical cost of fixed assets must be reliably determined, with a primary price set at 30,000,000 dong or more Circular 45/2013/TT-BTC defines primary price as encompassing all expenses incurred by enterprises to acquire tangible fixed assets until they are ready for use, as well as all costs associated with obtaining intangible assets at the time they are intended for use.
Fixed assets can be classified into two main categories based on ownership: those owned by enterprises and those leased by enterprises.
Regarding assets owned by enterprises, assets are again classified into three different categories, based on their technical characteristics: tangible, intangible fixed assets and fixed assets obtained under finance lease:
Tangible fixed assets, as defined by VAS No 03, refer to physical assets owned by enterprises for use in production and business activities, meeting specific recognition criteria These assets can exist as independent units or as interconnected combinations working together to fulfill a particular function In accounting, tangible fixed assets are categorized into various groups based on their nature.
- Means of transport, conveyance equipment;
- Perennial tree garden, animals reared to labor for humans and to yield products;
Intangible fixed assets, as defined by VAS No 04, are non-physical assets whose value can be assessed and are utilized by enterprises in their production, business activities, or leased to others In accounting, these assets are categorized into different groups based on their nature, adhering to the recognition criteria for intangible fixed assets.
- The right to use land for a definite term;
- Licenses and right concession permits;
- Preparation formulas and methods, models, designs and prototypes;
- Intangible fixed assets being developed
A finance lease, as defined by VAS no 06, is a lease in which the lessor transfers most risks and rewards of asset ownership to the lessee, potentially allowing for ownership transfer at the lease's end To qualify as a finance lease, the present value of minimum lease payments must meet or exceed the asset's fair value Lessees can acquire full ownership through a purchase option or choose to extend the lease with a new contract Assets that do not meet recognition criteria are classified as operating leases.
1.1.2.1 Historical cost of fixed assets
The determination of historical cost of tangible fixed assets is stipulated in VAS no 03 and in Point d, Clause 1, Article 35 of Circular 200/2014/TT-BTC Some significant points include:
Historical costs for purchased tangible fixed assets encompass the purchase price (after accounting for trade discounts or rebates), applicable taxes (excluding refundable taxes), and all directly-related expenses necessary to make the assets operational This includes costs for site preparation, initial delivery, material handling, installation, testing (minus any recoverable values from testing), and professional fees It's important to note that interest costs from loans used to acquire completed fixed assets, which are ready for immediate use, are not included in the capitalized historical costs.
The historical costs of fixed assets in contract awarding are determined by the settled costs of construction works as outlined in the current investment and construction management regulations, along with any directly attributable expenses and property transfer taxes, if applicable For fixed assets such as working or producing animals and perennial gardens, their historical costs are calculated as the total actual costs incurred during their development until they are ready for use, plus any directly related expenses.
The historical cost of a tangible fixed asset acquired through the exchange of dissimilar tangible fixed assets or other assets is determined by assessing the fair value of the received or exchanged assets This valuation should include any cash amounts or cash equivalents exchanged, along with directly attributable expenses necessary to prepare the asset for use, excluding refundable taxes.
The historical cost of a tangible fixed asset is determined when it is acquired through an exchange for similar assets, or when it is sold in exchange for ownership of similar assets that offer comparable utility and value within the same business sector In such exchanges, no gain or loss is recognized, and the historical cost of the newly received fixed asset is equivalent to the residual value of the asset that was exchanged.
The historical cost of a tangible fixed asset received through donation or transfer is determined by the residual value recorded in the donor's fixed assets account or the value assessed by the Board of exchange or a professional appraisal organization This cost also includes any directly attributable expenses incurred by the asset receiver, such as transportation, material handling, upgrades, installation, testing, or property transfer taxes, up until the asset is ready for use.
The historical cost of intangible fixed assets encompasses all expenses incurred by enterprises to acquire these assets until they are ready for use, as outlined in VAS No 4 The determination of this historical cost is governed by the regulations set forth in VAS No 04 and specifically detailed in Point b, Clause 1, Article.
37 of Circular 200/2014/TT-BTC Some significant points include:
The historical cost of a separately-acquired intangible fixed asset includes the purchase price, adjusted for any trade discounts or price reductions, along with applicable taxes (excluding reimbursed amounts) and any expenses directly associated with preparing the asset for its intended use.
The historical cost of land use rights, classified as an intangible fixed asset, includes the total expenses incurred to acquire these rights This encompasses payments made to the transferor, costs associated with land clearance and leveling, as well as any property transfer taxes Additionally, the agreed-upon amount between contracting parties when contributing capital is also considered The classification of land use rights as intangible fixed assets is subject to relevant legal regulations.
- The historical cost of the intangible fixed assets transferred shall be the historical cost recorded in the accounting records of the receiver
Regarding finance-lease fixed assets:
The historical cost of a financial lease fixed asset is determined by the greater of the lease's fair value or the present value of the minimum lease payments, along with any initial direct costs associated with the financial leasing process.
If the input VAT is deductible, present value of minimum lease payments amounts shall not include VAT payables to the lessor
The methods of depreciating fixed assets are stipulated in VAS no 03 Some significant points include:
Audit of fixed assets in an audit of financial statements
1.2.1 An overview of an audit of financial statements
An audit is an evaluation process that allows an auditor to provide an opinion on the fair presentation of a subject matter (PwC, 2007) Specifically, financial statement audits are conducted to independently assess whether a company's financial statements comply with relevant laws and regulations, ensuring their accurate representation.
Financial statements provide crucial information about a company's financial position and performance, serving key external users like customers, suppliers, investors, banks, public organizations, and governments for economic decision-making To ensure the reliability of these decisions, the quality of the information must be verified through audits, which encompass not only financial statements but also other management disclosures Qualified auditors assess compliance with Vietnamese accounting standards and applicable laws, ensuring that the financial statements accurately reflect the company's financial status and performance Additionally, audits help identify outstanding issues and weaknesses, enhancing the reliability of the presented information.
In Vietnam, companies must prepare financial statements following 26 Vietnamese Accounting Standards (VAS) and the accounting policies outlined in Circular 200/2014/TT-BTC issued by the Ministry of Finance on December 22, 2014, along with other relevant laws To ensure the accuracy and reliability of these financial statements, independent auditors are engaged to perform audit engagements The requirement for independent auditor reports is mandated by the Vietnamese Law on Independent Audit (Law 67/QH).
In accordance with Decree No 17/2012/NĐ-CP issued on February 13, 2012, independent auditors in Vietnam must adhere to established guidelines for conducting audits These auditors are required to follow Vietnamese Standards on Auditing to ensure the accurate and truthful representation of financial statements.
1.2.2 Objectives and basis for an audit of fixed assets
The primary goal of auditing fixed assets is to gather sufficient evidence that ensures the reliability and reasonableness of the financial information associated with these assets This process not only certifies the integrity of the audited financial statements but also provides essential information and documentation for auditing other accounts Auditors must focus on specific objectives related to transactions and account balances, taking into account the unique characteristics and regulations governing fixed assets.
Table 1.1: Audit objectives in auditing fixed assets
Audit assertions related to auditing fixed assets transactions
Audit assertions related to auditing fixed assets balances
Audit assertions related to presentation and disclosure
Occurrence: Transactions and events that directly
Existence: Fixed assets presented on accounting
Transactions and events involving fixed assets recorded in financial statements have occurred and are relevant to the entity The books accurately reflect these assets as existing at the time of reporting, ensuring that all disclosed information pertains to the entity's fixed assets.
Completeness: All transactions and events involving fixed assets that incurred in the period have been recorded in accounting books, not identical or omitted
Completeness: Fixed assets on the accounting books that should have been recorded have been recorded
Completeness: All transactions, balances, events and other matters that should have been disclosed have been disclosed in the financial statements
Accuracy: Amount and other data related fixed assets recorded must be calculated and evaluated properly and reasonably
Amounts are included in the financial statements at appropriate amounts, and detailed balances on the allocation table are consistent with the ledger
Any resulting valuation or allocation adjustments are appropriately recorded
Transactions, events, balances and other financial matters have been disclosed accurately at their appropriate amounts
Classification: Transactions and events involving fixed assets must be classified and recorded in the proper accounts in accordance with accounting principles
Disclosed events, transactions, balance, and other financial matters have been classified appropriately and presented clearly in a manner that promotes the understandability of information contained in the financial statements
Cut-off: Transactions and events have been recorded in the correct accounting period
The entity actually holds or controls the rights associated with the owner of the prepayment item
Source: Financial Auditing Text Book – National Economics University
Specific sources (or auditing bases) for auditing fixed assets are varied in form, source and content An overview (bases for auditing) is as follows:
Policies and regulations governing internal controls, especially regarding fixed assets, are established by both state authorities and the enterprises themselves While these regulations primarily reflect management's perspective, they comprehensively address overall control mechanisms within the organization.
Relevant financial statements, including balance sheets (financial information such as long-term prepayment, fixed assets, supplies); Reports on business performance (financial information such as other expenses, other income)
Accounting books related to fixed assets include general accounting and detailed accounting books of accounts such as accounts 211, 212, 213, 214, 241 etc
Accounting vouchers are essential documents that capture transactions involving fixed assets and provide the foundation for entries in accounting records Common types of accounting vouchers include purchase invoices, payment vouchers, and fixed asset registers.
Other documents related to fixed assets such as contracts on finance lease fixed assets, settlement of contracts
Auditors are required to gather adequate audit evidence during the auditing process To streamline the audit, it is beneficial for auditors to notify clients in advance about the specific documents they need to prepare.
1.2.3 The audit process for fixed assets
Due to VSA 1000, the audit process for fixed assets comprises 3 phases with audit procedures as follow:
Source: Financial Auditing Text Book – National Economics University
(3) Assess risks and setting materiality levels
(4) Obtain an understanding of the internal control systems and assessing control risks
(9) Obtain information about subsequent events and going concern assumption
(10) Synthesize and analyze the findings
(1) Obtain an understanding of the client and its environment.
(5) Develop an overall audit strategy and a detailed audit plan
(11) Prepare and issue the audit report
Figure 1.5: The audit process for fixed assets
Audit planning marks the initial stage of the audit process, focusing on creating a comprehensive audit strategy and a detailed plan to ensure efficient fieldwork Key activities during this phase include defining objectives, assessing risks, and determining resource allocation.
(1) Obtaining an understanding of the client and its environment
According to VSA 300 and VSA 315, auditors must acquire a comprehensive understanding of the business, including its operational context, accounting systems, internal controls, and inherent risks This knowledge enables auditors to assess risks effectively and identify significant issues relevant to the audit engagement and specific accounts In the case of fixed assets, pertinent information is essential for this assessment.
Legal obligations and internal regulations can be sourced from various documents, including the corporate charter, company statutes, meeting resolutions and minutes, materials distributed to shareholders or governing bodies, and other legal papers such as capital contribution notes and delivery notes related to the transfer of ownership of fixed assets.
Understanding the operating industry involves a comprehensive grasp of the economy and specific knowledge of organizational structures and unit operations within audited entities This insight enables auditors to assess the appropriate capital allocation for fixed assets and determine their material significance in financial statements During the audit engagement, auditors also evaluate the accuracy of these capital proportions, ensuring the integrity of financial reporting.
Due to VSA 520 “Procedures for analysis”, the auditors are required to carry out the analytical process when making the audit plans
After gaining an understanding of the client and their environment, auditors conduct analytical reviews to determine the necessary content, time allocations, and procedures for gathering audit evidence Specifically for fixed assets, these procedures help auditors develop insights into fixed asset accounts on financial statements and verify significant changes in accounting policies and operations that may affect fixed asset control This process gives auditors a comprehensive overview of the client's fixed asset situation Commonly utilized analytical procedures include trend analysis and proportional analysis.
Trend analysis, also known as horizontal analysis, examines the variations in account balances on financial statements over a specified timeframe This method allows auditors to compare current year data with that of the previous year, as well as midyear reviews, to identify significant discrepancies and unusual trends.
- Proportional analysis (vertical analysis): evaluates the proportion of fixed assets with related control accounts, hence, assesses the materiality of fixed assets
(3) Assess risks and setting materiality levels
The Practice of audit procedures of fixed asset items in a financial
An overview of Deloitte Vietnam Company Limited
Deloitte, part of the Big Four in auditing and accounting alongside E&Y, KPMG, and PwC, stands as a leading global provider of audit, assurance, consulting, financial advisory, risk advisory, and tax services Since its establishment in 1985, Deloitte has consistently delivered high-quality services for over 175 years, solidifying its reputation as a prestigious and trustworthy firm in the industry.
Deloitte is a global network comprising around 286,000 professionals in independent firms that work together to deliver services in audit and assurance, consulting, financial advisory, risk advisory, and tax Deloitte Vietnam Company Limited, an affiliate of Deloitte Southeast Asia Ltd, is part of the Deloitte Asia Pacific Limited network.
2.1.1 The history of Deloitte Vietnam Company Limited
Deloitte Vietnam, originally founded as the Vietnam Auditing Company (VACO) in 1991, holds the distinction of being the first independent audit firm in Vietnam The establishment of Deloitte Vietnam marked a significant milestone in the evolution of the country's independent audit industry.
In 1992, VACO partnered with Deloitte Touche to enhance its expertise in Vietnam Following a transfer of ownership in May 2007, the company began operating officially as Deloitte Vietnam.
For nearly 30 years, DVN has been a market leader, delivering high-quality services that enhance investor trust and support government and accounting organizations in improving financial regulations Recognized for its positive contributions, DVN has received numerous prestigious awards from the Ministry of Finance and the State Securities Commission Additionally, DVN consistently ranks among the best-performing companies, earning accolades for being an excellent workplace for its employees.
2.1.2 The main business lines, clients and recent business results of Deloitte Vietnam Company Limited
DVN operates in 5 main services lines:
Our Audit & Advisory services encompass a range of essential offerings, including statutory and international standard audits, financial due diligence, and IFRS conversion services We also provide agreed-upon procedures, comprehensive audits and reviews of accounting systems and internal controls, as well as specialized audit advisory and accounting advisory services Additionally, we ensure the reliability of computer systems through our Computer System Assurance services.
- Tax & Legal: Tax advisory & Planning; International Tax structuring; Corporate Income Tax Services; Transfer Pricing; Customs & Indirect Tax; Global Employer Services; Tax Compliance Health-check Services; Tax Controversy Services
- Financial Advisory: Corporate Finance; Acquisitions; Disposals; M&A Transaction Services; Valuation Services; Business Modeling; Merger integration Forensic & dispute Services; Business Reorganizations
- Risk Advisory: Strategic Risk (Corporate Governance, Strategic Risk,
Sustainability and Corporate Responsibility, etc.); Regulatory Risk (Regulatory
Strategy, Regulatory Compliance, etc.); Financial Risk (Market & Credit Risk,
Capital Management, Liquidity and Treasury Risk, etc.); Operational Risk (Internal Audit, Operational Risk and Transformation, Technology and Data Risk, etc.);
Cyber Risk (Cyber Strategy, Cyber Security, etc.)
- Training Service: Audit training programmes; Corporate Financial management training programs; Enterprise Risk and Corporate Governance training programs; Tax training programs; Leadership skills and Human Resources Management training programs
Deloitte Vietnam serves a diverse range of prominent clients, including three out of the four largest banks, the national Oil & Gas Corporation, the leading power corporation, a major telecommunications firm, and the largest national airline Additionally, Deloitte is involved in numerous projects funded by international organizations such as the World Bank, ADB, IMF, and JICA Their Audit & Assurance services are provided by a highly skilled team, ensuring top-notch support for these significant entities.
900 professional staff, 27 partners and directors with 94 CPA Vietnam, 83 Master and Doctor holders, 150 ACCA/International CPA and equivalent and 926 Bachelor holders
Deloitte Vietnam has received approval from the State Securities Commission of Vietnam to conduct audits for public interest entities for the fiscal year 2019, as per Decision 937/QD-UBCK dated November 19, 2019 This positions Deloitte among a select group of foreign consulting and auditing firms authorized to provide these essential services.
Deloitte is dedicated to providing exceptional professional services, ensuring that clients receive top priority and focused engagement In delivering Audit & Assurance services, the engagement team enhances value by offering additional services such as Corporate Management Advisory, Tax, and Internal Control solutions.
Providing advisory services to support clients in preparing internal charter/regulations that are suitable to the nature and operation of the company
Providing advisory services supporting clients in developing risk management framework
Inspecting the reliability of the client’s computer system for financial reporting and recommend improvement to the system if any with the help of
Providing monthly tax newsletters and tax alerts on latest tax regulations/issues;
Providing relevant Vietnam tax, investment, labor regulations, when required;
Updating the client with latest Vietnam tax regulations that might have significant impact on the tax position, when required;
Inviting the client’s representatives to participate in Deloitte’s Tax/Accounting Seminar and other seminars (chargeable or free of charge)
Informing management of the client any matters concerning the client’s internal control, accounting practices and other issues
Enclosing comments and recommendations on the noteworthy matters to assist management of the Company in overcoming the outstanding weakness in the accounting and internal control systems (if any)
Informing and updating management of the Company any newly released accounting regulations and any changes, which specifically affect the Company’s accounting works
For several consecutive years, DVN has consistently ranked among the leading companies in revenue generation within the audit and financial services sector The revenue data for DVN is detailed in the accompanying table.
Table 2.1: Summary of Top 4 Audit Companies with the largest revenue in
In recent years, DVN has consistently ranked among the top four companies in Vietnam by revenue, achieving 879 billion VND in 2017 and increasing to 1,137 billion VND in 2018 The firm not only maintained its top position but also experienced substantial growth in both revenue and client numbers Notably, Audit & Advisory services accounted for the largest share of revenue at approximately 61%, while Tax and Legal services contributed 19%.
2.1.3 The organization structure of Deloitte Vietnam Company Limited
Management structure of Deloitte Vietnam includes:
- Board of Members and Chairman of Board of Members;
- Supervising Committee of Executive Board of Members;
- Board of Management, Managing Directors;
- Chairman/ Managing Directors of member companies
The organizational structure of the Audit Function comprises:
2.1.4 Audit Process at Deloitte Vietnam Company Limited
2.1.4.1 The audit approach at Deloitte Vietnam Company Limited
DVN, recognized as an international independent audit organization, shares a cohesive approach with Deloitte network member firms This collaboration allows DVN staff to leverage resources and expertise from the global Deloitte network, enabling mutual support in overcoming limitations related to international information, equipment, or technical knowledge All Deloitte member firms implement a partner-led audit strategy that employs a risk-based approach, enhancing risk identification and assessment while promoting the effectiveness of audit procedures.
The audit process at DVN consists of three key phases: planning, testing, and review and reporting Throughout these phases, various audit procedures are conducted, including tests of controls, tests of details, analytical procedures, and substantive audit procedures In the test of controls phase, DVN focuses on evaluating control activities and objectives, allowing auditors to assess internal controls effectively This not only helps in identifying risks associated with the audit engagement but also provides valuable services to clients.
The approach of Deloitte network applied to DVN can be illustrated as following:
Figure 2.1: Audit practice at Deloitte Vietnam
Source: Audit at Deloitte – Aspire with assurance (By Deloitte Luxembourg)
Deloitte Vietnam conducts thorough evaluations of risks and audits related controls through a business process-based audit plan, closely collaborating with clients The findings from this control assurance evaluation inform the essential substantive procedures needed Their methodology minimizes the typically time-consuming substantive procedures while maintaining high-quality audit results.
During the planning process, Deloitte Vietnam auditors undertake key steps such as evaluating engagement risks, gathering detailed information about client activities and accounting procedures, gaining insights into entity-level and process-level controls, establishing planning materiality, and developing a comprehensive audit plan.
The practice of an audit of fixed assets in an audit of financial statements at
at Deloitte Vietnam Company Limited
In order to gain insights into fixed asset audits within financial statement audits at DVN, the author focused on the audit engagement of ABS Joint Stock Company for the research presented in this thesis.
Since 2016, The Company has maintained an annual audit contract with DVN, which includes biannual reviews of financial information—one review occurs mid-fiscal year and the other at the fiscal year's end.
Upon accepting the audit engagement, the Board of Managers at DVN designates an appropriate manager-in-charge and schedules the fieldwork timing This selection is based on an assessment of independence, prior audit documentation, and client requirements The manager-in-charge then selects the senior-in-charge, associates, and apprentices Since the Company is a returning client, the audit team remains largely consistent, with a total of five days allocated for the fieldwork.
After the decision of timetable and staffing, the planning phase was implemented as follow:
2.2.1.1 Obtaining an understanding of the client
The information about the client is stored in EMS under the sub-phase 1210
“Understand the Entity and Its Environment”
- An overview of ABS Joint Stock Company:
ABS Limited Liability Company was founded on September 1, 2000, following Decision No 126/QĐ-HĐQT-NHCT1 issued by the chairman of VietinBank, Vietnam's Joint Stock Commercial Bank for Industry and Trade.
In 2009, ABS is equitized into ABS Joint Stock Company with the chartered capital of 789.9 billion VND
The currents stocks of the company has been listed on HOSE Exchanges since June 2017 with the reference value of 10,950 VND per share
The principle operating activities of ABS Joint Stock Company are brokerage services, securities trading, underwriting custodian services, investment portfolio management for personalized customers, financial advisory and other consulting services
- The business goals and strategies:
ABS Joint Stock Company is a leading and reputable securities firm in Vietnam, specializing in a range of services including securities, investment, and financial advisory for individual clients, corporations, and organizations The company fosters collaboration and investment opportunities, aligning with its slogan “Seeding your success.” With a vision to be a pioneer in the Securities and Commodity industry, ABS is committed to creating success opportunities for its clients, owners, and employees, thereby contributing positively to the growth of the Vietnamese economy.
ABS is committed to establishing itself as a leading financial institution by focusing on sustainable development across all sectors The company aims to enhance its service offerings, including Bond Issuance Advisory and Corporate Financial Restructuring Advisory, to deliver diverse benefits to customers Additionally, ABS will actively pursue opportunities in the corporate bond market, facilitating access to a range of investment products for its clients.
ABS is committed to enhancing its expense management, internal controls, and risk management strategies The company prioritizes the quality of its workforce by ensuring employee benefits and fostering a sustainable corporate culture, all aimed at establishing itself as a leader in the investment banking sector.
Figure 2.2: The organization structure of ABS Joint Stock Company
Source: Audit documents and records of the audit of ABS Joint Stock Company
ABS operates in financial services market, specifically securities sector The market is dominated by 5 major players, accounting for nearly half of total market
The General Assembly of Shareholders
Inspection Committee The Board of Directors
Da Nang Branch Ho Chi Minh City Branch
Companies in the securities sector, such as those specializing in administration, finance and accounting, and information technology, boast a robust capital foundation and substantial margin balances These firms offer clients various advantages, including the reduction of transaction costs, which helps sustain their market shares among the top five in the industry.
ABS is struggling to enhance its market share due to significant fluctuations in the stock market, similar to the challenges faced in 2019 These market instabilities have hindered ABS's ability to meet its business objectives and have also led to difficulties in retaining brokerage staff, primarily due to reduced compensation Additionally, the Ministry of Finance's policies to lower transaction fees for investors, along with increased competition from foreign securities firms, present substantial challenges for ABS To navigate these obstacles, ABS must effectively manage its operations and diversify its portfolio.
- Financial reporting at ABS Joint Stock Company:
The preparation of financial statements for securities companies in Vietnam adheres to the accounting policies outlined in Circular 210/2014/TT-BTC and its amendments through Circular 334/2016/TT-BTC, both issued by the Ministry of Finance These financial statements comply with the current regulations regarding their preparation and presentation, ensuring they reflect the cost principle.
+ Fiscal year: The Company’s fiscal year is from 1 st January to 31 st December
+ Currency: The currency unit used for prepared and presented the financial statement is Vietnamese Dong (VND)
+ Fixed assets are stated at historical cost less accumulated depreciation/amortization Historical cost includes expenditure that is directly attributable to the acquisition of the fixed asset
+ Fixed asset are depreciated/amortized using the straight-line method over their estimated useful lives The principle rates used are:
Other tangible fixed assets 3 years
Following a thorough understanding of the client, auditors conducted analytical procedures to assess the fluctuations in fixed asset account balances and scrutinized the profit or loss statements to identify any unusual transactions related to fixed assets.
The changes in the balance of fixed asset accounts is calculated as follow:
Table 2.2: Preliminary analysis of fixed asset account as at 31 st December 2019
Prior year (VND) Сhanges in amount
Source: Audit documents and records of ABS Joint Stock Company
In 2019, ABS Joint Stock Company experienced a decrease in fixed assets by VND 4,012,403,683, representing a decline of 6.68% This reduction corresponds with an increase in accumulated depreciation expenses by the same amount, while the cost of fixed assets remained unchanged This suggests that there were likely no transactions affecting the cost of fixed assets during the year To provide an accurate assessment, auditors will conduct verification procedures related to this statement during the upcoming audit engagement.
The proportion of Fixed Assets to Total Assets for ABS remains notably low, ranging from 2% to 2.5%, despite an increase observed in 2019 The Company's tangible fixed assets primarily include computers, network servers, routers, printers, projectors, and various office equipment.
In the realm of intangible assets, land use rights for office buildings constitute the largest share compared to software applications Given the minimal proportion of fixed assets relative to total assets, the materiality for this account should be appropriately adjusted Most securities companies exhibit a low fixed asset ratio, typically ranging from 0.1% to under 4%, making it reasonable for fixed assets at ABS to account for 2% of total assets.
Furthermore, the auditors analyze the statement of profit or loss, as follow:
Table 2.3: Preliminary analysis of the income statement for the period ended 31 st
Financial income 1,317,565,287 1,652,893,680 (335,328,393) -20.29% Financial expense 56,983,686,879 55,990,775,893 992,910,986 1.77% General and administrative expense
Net other income 429,593,201 642,437,073 (212,843,872) -33.13% Net accounting profit before tax 139,641,836,609 182,098,732,122 (42,456,895,513) -23.32%
Net profit after tax 114,805,156,081 150,649,976,732 (35,844,820,651) -23.79% Earning per share
Source: Audit documents and records of ABS Joint Stock Company
In 2019, operating income fell by VND 147,808,039,347, a decrease of 22.64%, despite a 28.41% reduction in operating expenses, largely due to fluctuations in the securities market While no purchases or disposals of fixed assets were anticipated, there was a notable increase of VND 4,385,082 in other expenses that warrants further investigation.
Assessment of the audit practice of fixed assets in an audit of financial
The fixed asset account is accurately stated, with the depreciation rate adhering to Circular 45 Consistency is maintained across accounting documents over the years and across various books and accounts Therefore, there are no issues regarding fixed assets that require discussion in the meeting.
Before issuing independent audit reports, each audit engagement undergoes a final review by an external quality control assistant (EQCA), typically an audit director or partner The EQCA reviews the working papers to confirm that all audit procedures were executed, sufficient evidence was gathered, and the audit opinion is well-founded This quality control process ensures that every audit report at DVN meets high standards Once approved by the EQCA, the Archive Department issues the audit report, which is signed by both the partner-in-charge and the senior-in-charge.
2.3 Assessment of the audit practice of fixed assets in an audit of financial statements at Deloitte Vietnam Company Limited
The audit practices at Deloitte Vietnam Company Limited, particularly regarding the auditing of fixed assets, demonstrate a comprehensive approach to financial statement audits.
The audit methodology at DVN is collaboratively developed with the Client and follows a risk-based approach led by Partners at Deloitte During the planning phase, auditors gain insights into the client's operating environment and internal controls, allowing them to design an audit strategy that addresses identified risks Additionally, the audit team provides value-added services such as Corporate Management Advisory, Tax, and Internal Control, involving professionals from various departments including Information Technology, Tax Advisory, Risk Advisory, and Finance Consultancy Regular meetings between senior managers and the audit team ensure consistent communication, with daily updates on the audit's progress and completion percentage, fostering a mutual understanding between both parties.
At DVN, audit documents and records are efficiently stored in both software applications and physical formats, allowing for easy access and review of working papers Auditors can conveniently retrieve prior year documents and records from both the Electronic Management System (EMS) and hard copies before commencing any audit engagements.
The documentation is systematically organized and numbered according to the EMS application design, ensuring a coherent arrangement Each working paper references supporting documents, facilitating effective review and oversight by senior auditors.
All audit files will be retained for a period of three years Recently, the trend of job switching in the assurance sector has enabled senior auditors to gain valuable insights into clients and the specifics of audit engagements, ultimately streamlining the planning phase and saving time.
DVN has created an Excel Add-in called "Analytic" that significantly aids auditors in conducting audit procedures and analyzing client information This tool automates the sampling process based on the population, performance materiality, and assessed risks for the account, thereby minimizing detection risks By reducing the reliance on personal judgment in sampling, it helps prevent the underestimation of extraordinary expenses incurred during the audit period.
The integration of EMS and DWW facilitates a connection between DVN and Deloitte Global At DVN, working papers and audit evidence are organized systematically, with all documentation for special audit engagements presented in English Each year, Deloitte SEA randomly selects various audit engagements for review to verify that the audit approach is implemented as intended and to maintain the quality of assurance services.
The audit process for fixed assets:
DVN has enhanced its audit procedures during the planning phase to align with Vietnamese Standards on Auditing (VSA) The working papers feature a well-structured template that ensures clarity in presentation Additionally, the auditors are qualified and experienced, receiving annual training to maintain high-quality assurance services.
Each account is assigned to a dedicated auditor with the appropriate expertise to ensure a thorough audit process These auditors gain a comprehensive understanding of the client, enabling them to assess the company's internal controls effectively In the event of identified deficiencies, targeted audit procedures are employed to mitigate any associated risks By evaluating these risks, senior auditors can formulate tailored overall audit strategies and detailed plans for each account.
Materiality in auditing financial statements is determined by the absolute figures or percentages related to total assets, total revenue, or profit before tax, tailored to the specific business type of the client Each client's materiality levels are established professionally, adhering to the audit guidelines set forth by Deloitte Global.
Throughout the fieldwork, auditors responsible for the fixed assets account adhered to the established audit strategies and plans Their work was consistently updated on a daily basis and completed on schedule, ensuring that all requirements were met.
To enhance efficiency, auditors reviewing fixed assets assessed the permanent difference in depreciation charges to validate the audit of income tax expenses, examined the classification of depreciation expenses to corroborate the audit of operating expenses, and collaborated with auditors responsible for related accounts.
Thorough reviews and tests are conducted on key documents, including invoices, fixed asset registers, handover minutes, and final acceptance minutes All audit evidence necessary for forming an audit opinion has been securely stored in the audit files.
Recommendations for improvement of audit procedures of fixed
The necessity of improvements
As global economies embrace open borders and increased trade, the demand for transparent financial information has become essential for businesses seeking to attract investment This growing need has fueled the expansion of the independent audit industry, which continually strives to improve the quality of its audit services High-quality audits not only enable auditors to form informed opinions but also assist businesses in identifying operational weaknesses, allowing them to implement necessary improvements This focus on transparency and quality is particularly relevant in the context of fixed asset audits.
- Fixed assets relate to multiple accounts on financial statements Consequently, audit of fixed assets must be performed effectively in order to avoid errors affecting other accounts
To retain its status among the top four audit firms, Deloitte Vietnam Limited must implement effective strategies to address weaknesses in its audit processes, particularly concerning fixed assets Enhancing the audit procedures for fixed asset items is essential for boosting audit quality and strengthening Deloitte's brand reputation.
Principles for the improvement of the audit procedures for fixed assets
The enhancement of the effectiveness of overall audit methods and audit methods for fixed assets accounts is of absolute necessity However, the enhancement must follow these principles:
- Increase the use of sample software in audit of financial statements;
- The enhancement must be simple in nature, functional for effective management in order to manage expenses
- Appropriate for international integration, considering Vietnam’s conditions on a step-by-step basis in approaching advanced techniques
To enhance overall performance, the firm must prioritize staff training and development, ensuring high-quality service delivery Additionally, competitive compensation and a clear bonus policy are essential for motivating employees Implementing effective feedback mechanisms will further support staff growth and align their efforts with the company's objectives.
Solutions to improve the audit procedures of fixed asset at Deloitte Vietnam
- Obtaining an understanding of the client:
Understanding existing clients often relies on outdated audit reports, which may not accurately reflect their current situations To address this, audit firms should assign experienced auditors to investigate client changes during interim audits or financial statement reviews Specifically, auditors must assess whether a company has expanded operations, undergone significant management changes, or has an effective internal control system to evaluate overall and specific audit risks Additionally, diversifying information-gathering methods, such as expert interviews and industry news, can enhance the quality of insights collected Although these approaches may be time-consuming and costly, they ultimately lead to more accurate assessments of clients.
- Determination of each account’s materiality:
During the planning phase, auditors assess the materiality of financial statements to ensure that misstatements remain within an acceptable range This evaluation helps determine the audit's scope and understand the implications of any misstatements, guiding the nature, timing, and extent of the audit procedures With an initial materiality estimate in hand, auditors then allocate this estimate across each account in the financial statements.
To enhance risk management, the company must implement a protocol for assigning materiality levels to each account, taking into account the specific nature and associated risks of those accounts This approach ensures that the materiality allocated is inversely proportional to the risks involved, thereby promoting a more effective oversight process.
The audit of the fixed assets account reveals medium inherent and control risks, while detection risk is low, resulting in an overall medium audit risk Considering past audit results and the company's size, the auditor will set materiality levels for the fixed assets account This approach enables the auditor to determine the necessary quantity of evidence efficiently and cost-effectively, ensuring that misstatements in the financial statements remain within the estimated materiality threshold.
To effectively understand a client's internal control system, Deloitte Vietnam employs three primary methods: flow charts, questionnaires, and internal control reports While flow charts and questionnaires are commonly used, their effectiveness can be hindered by the potential dishonesty of respondents and the generic nature of questionnaires that may not accurately represent the specific circumstances of diverse clients, particularly small businesses To enhance audit efficiency and gain a comprehensive perspective, Deloitte Vietnam should consider integrating multiple methods, including flow charts, which are based on the auditor's direct observations of internal controls.
To implement the proposed method effectively, Deloitte must establish a clear and comprehensive set of audit rules and guidelines for evaluating internal controls Additionally, any updates to the audit program, particularly regarding changes in internal control performance, should be accompanied by guidance training for all staff to ensure consistent implementation across Deloitte Vietnam.
- Encounter the lack of staff:
To address staffing shortages during peak seasons, recruiting additional collaborators is an effective strategy, provided that the quality of human resources is upheld This approach ensures that Deloitte's reputation and the standard of services offered remain unaffected.
Analytical procedures play a crucial role in every phase of an audit, enabling auditors to identify abnormal accounts and transactions This identification allows auditors to tailor their approach to address these irregularities effectively.
In conducting analytical procedures, auditors primarily utilize horizontal analysis to examine trends in fixed asset accounts over time This trend analysis includes a detailed examination of tangible and intangible fixed assets, as well as their depreciation, which helps auditors assess changes in these accounts relative to total assets Such evaluations aid in refining materiality estimates and identifying potential material misstatements, ultimately enhancing the design and implementation of audit procedures Additionally, auditors must consider whether these changes align with shifts in the economic environment, industry dynamics, and the business's strategic direction, ensuring that appropriate measures are taken.
- Enhance the auditor’s initiative and autonomy:
Deloitte Vietnam and Deloitte Global provide essential procedures and guidance that should serve as a framework for auditors rather than a strict checklist Each client requires a tailored approach based on their unique characteristics Auditors are encouraged to offer insights on enhancing the effectiveness of these guidelines to elevate the overall quality of the audit process.
Deloitte Vietnam should leverage technological advancements to enhance its audit programs, aligning with global trends that integrate technology across various sectors While Deloitte Vietnam currently utilizes Deloitte SEA's software, challenges remain, particularly with data synchronization between platforms, leading to inefficiencies To improve its audit services, Deloitte Vietnam should prioritize upgrading its software in the near future.
In-charge auditors must prioritize the summarization of audit results while effectively managing their teams It is essential for audit assistants and team members to maintain a professional attitude, adhere to strict deadlines, and submit their working papers punctually This approach not only saves time but also allows in-charge auditors to engage with clients efficiently, ensuring the timely issuance of audited reports and management letters as outlined in the audit contracts.
During peak season, time pressure is inevitable, making it essential for auditors to uphold professional standards to meet service quality requirements To enhance the audit process and minimize errors, Deloitte Vietnam should invest in additional technical training for its staff, ensuring a more efficient workflow.
Recommendations for improvements of fixed asset audit at Deloitte Vietnam
To align with international principles, Vietnamese regulators must continually improve and update accounting and auditing standards Additionally, establishing consistent legal guidelines and a unified legal framework for audit activities is essential, encompassing laws and legal documents related to independent audits, as well as providing clear guidance on the organization and objectives of audits.
Regulators must supervise the quality of audit activities since audit results have significant impacts on other organizations, bodies and individuals in an economy
Frequent updates in accounting and auditing practices pose challenges for professionals due to the lack of timely documentary guidelines To support accountants and auditors effectively, it is essential to issue these guidelines promptly.
(b) To the Vietnam Association of Accountants and Auditors (VAA):
Professional associations for accountants and auditors are crucial for improving the quality of accounting and auditing services By organizing workshops focused on relevant themes, these associations provide opportunities for members to network, collaborate, and enhance their technical skills.
Such associations should also provide trainings to members top update their technical knowledge, on both Vietnamese and international topics
Associations must establish regulations to ensure the quality of audits By conducting regular evaluations of registered audit firms, these associations can assess compliance with ethical professional standards in the auditing process and the issuance of audited reports.
(c) To Deloitte Vietnam Company Limited:
Deloitte Vietnam should prioritize recruitment and ongoing training to enhance staff expertise, focusing on organizing annual professional auditing classes Additionally, the firm should encourage employees to engage in training programs that bolster both technical and professional skills, while also supporting their pursuit of international certifications such as ACCA and ICAEW.
Recognizing and rewarding high-performing employees is essential for fostering a positive work environment, while openly discussing mistakes promotes continuous improvement These practices not only enhance employee morale but also improve the quality of audit engagements.
Auditors play a crucial role in the audit process and are accountable for the work performed To improve the quality of audit engagements, it is essential for auditors to continuously enhance their technical skills and uphold high ethical standards.
- Auditors must strictly follow ethical standards, continously train their knowledge and responsibility
Auditors at Deloitte Vietnam are required to possess a strong foundation in legal documents, including circulars and decrees, as well as comprehensive accounting and auditing knowledge This essential requirement ensures that audits are conducted in accordance with established standards, ultimately enhancing the quality of audit reports.
- Auditors must continously update information, legal documents on different industries, and be responsible for their assignments and set high standards for the quality of their work
[1] Audit documents and records at Deloitte Vietnam Company Limited
[2] Deloitte’s website: www2.deloitte.com
In their 2019 study, Nguyen Hoang Tien, Tran Minh Thuong, Le Doan Minh Duc, and Nguyen Thi Hoang Yen, reviewed by Collins G Ntim, explore how local auditing services in Vietnam can enhance their independence by leveraging the experiences of the Big Four firms—KPMG, Deloitte, PwC, and EY The research emphasizes the importance of adopting best practices and methodologies from these global leaders to improve the quality and reliability of local audits.
[4] Nguyen Quang Quynh (2014), Financial Audit Textbook, National Economic University Publisher
[5] Phan Thanh, Hai & Chuc Anh, Tu (2019) Research on Factors Affecting Accession Decision And Membership Level Choice in International Audit Firms: Experimental Evidence in Vietnam 85-101
[6] PwC (2017) Understanding a financial statement audit
[7] The Vietnamese Ministry of Finance Circular No 200/2014/TT-BTC on Guidelines for accounting policies for enterprises dated 22 nd December
[8] The Vietnamese Ministry of Finance Vietnamese Accounting Standards (VAS)
[9] The Vietnamese Ministry of Finance Vietnamese Standards on Auditing (VSA)
APPENDIX Appendix 1: Arrangement in Engagement management system
Source: Engagement Management System (EMS)
Appendix 2: Depreciation recalculation for tangible fixed asset
End date Type Start date
Depreciati on charge Diff Allocation account
=> diff due rounding, to less than CTT =>
Appendix 3: Depreciation recalculation for intangible fixed asset
Historical cost Depreciation charge Days of depreciation Depreciation charge Diff Allocation account