INTERNSHIP REPORT MAJOR: ACCOUNTING – AUDITING PSUTOPIC: AUDIT OF TANGIBLE FIXED ASSETS IN THE FINANCIAL STATEMENT AUDIT CONDUCTED BY THE DA NANG BRANCH OF FAT AUDITING AND FINANCE CO.,
BASIC THEORY OF FIXED ASSETS
Concepts and characteristics of Fixed Assets
Fixed assets are significant resources owned or controlled by an enterprise for the long term, characterized by their substantial value and extended usage period According to VAS 03 standards, these assets are expected to be in circulation and recoverable over a period exceeding one year.
- Participate in many production and business cycles
- Retains its original physical form until damage requires removal
- Gradual depreciation of value is partially transferred into the production and business costs of the enterprise.
Classification of Fixed assets
Tangible fixed assets are physical assets owned by a business that possess significant value and meet specific criteria These assets, which can be observed and are subject to wear and tear, include buildings, structures, machinery, equipment, vehicles, and perennial gardens.
Businesses can rent assets from financial companies under fixed asset leases, which grant them the option to purchase or extend the lease at the end of the term, based on pre-agreed contract conditions The rental amount for fixed assets must reflect their value at the time of leasing, while any assets that do not meet these criteria will be classified as operating leased fixed assets.
Leased fixed assets must satisfy one of the following conditions:
- Regarding ownership of fixed assets, the financial leasing company will hand over ownership to the leasing enterprise at the end of the lease term
In the commitment contract, the lessee has the option to purchase the leased fixed asset at a price that is below its fair market value upon the conclusion of the lease term.
- The rental period must account for the majority of the actual time of use of the asset
- At the time of leasing, the total rental cost must account for at least 60% of the value of the leased fixed asset
In Clause 3, Article 4 of Circular 45/2013/TT-BTC, the original cost of leased fixed assets is determined by:
Original cost Value of fixed assets at the time of lease
Fixed assets management
1.1.3.1 Conditions for recording fixed assets
For tangible fixed assets, there are 04 standards to recognize tangible fixed assets If they do not meet one of the standards, they become intangible fixed assets:
- The enterprise must obtain future economic benefits from the use of that asset
- The cost of assets must be determined reliably and accurately, with a value of 30,000,000 or more
- Assets with a useful life of 01 year or more
- Meets value standards according to regulations.
1.1.3.2 Principles of fixed asset management
Article 5 of Circular 45/2013/TT-BTC outlines four key principles for fixed asset management, emphasizing the importance of effective management, utilization, and depreciation of fixed assets.
In an enterprise, effective management and monitoring of fixed assets require maintaining comprehensive records, which should include delivery and receipt minutes, sales contracts, property purchase and sale invoices, and other relevant documentation.
- Classify, number, and tag each type of fixed asset separately. Each type of object recorded as fixed asset must be tracked in detail and reflected in the monitoring book
- Each type of fixed asset must be monitored and managed according to original price, accumulated depreciation and remaining value on the books according to the following specific formula
Original cost of assets due to purchase
(minus trade discounts and rebates)
Original cost of fixed = Actual + Directly related assets
(self-built, self- produced) price costs
Book value of fixed assets = Original cost - Accumulated depreciation
Enterprises must manage and monitor fixed assets that are not needed and awaiting liquidation, even if they have not been fully depreciated, in accordance with Circular 45/2013/TT-BTC Additionally, businesses should manage depreciated fixed assets that continue to be involved in business operations as they would with any regular fixed assets The original price of these fixed assets may change under specific circumstances.
- Re-evaluate the value of fixed assets according to the provisions of law
- Disassemble one or several parts of the fixed asset
Fixed asset accounting work
- Minutes of delivery and receipt of fixed assets
- Contract for sale and purchase of fixed assets
- Minutes of liquidation of fixed assets
- Minutes of handover of completed fixed assets
- Minutes of re-evaluation of fixed assets
- Minutes of fixed asset inventory
- Calculation and allocation of depreciation of fixed assets
1.1.4.2 Accounts a Account 211 – Tangible fixed assets
An account used to reflect the current value and fluctuations of all fixed assets at their original price
Account 211 – Tangible fixed assets have 6 level 2 accounts:
- Account 2111 – Buildings, structures: value of basic construction works such as houses, yards, railways, wharves,
- Account 2112 – Machinery and equipment: value of machines and equipment used in production, work equipment, production lines,…
- Account 2113 – Means of transport and transmission: value of means of transport, road, rail, aviation, transmission equipment,…
- Account 2114 – Management equipment and tools: value of equipment and tools used in production business activities,…
- Account 2115 – Perennial plants, working animals for products: value of perennial plants, working animals and animals raised for products,…
- Account 2118 – Other tangible fixed assets b Account 212 – Leased fixed assets
An account used to reflect the current value and fluctuations in intangible fixed assets of an enterprise
- Account 2121 – Financially leased tangible fixed assets:reflects the current value and fluctuations in financial leased tangible fixed assets of the enterprise
- Account 2122 – Financially leased intangible fixed assets: reflects the current value and fluctuations in financial leased intangible fixed assets of the enterprise c Account 214 – Depreciation of fixed assets
An account used to reflect the increase or decrease in depreciation value and accumulated depreciation value of all fixed assets and investment real estate
- Account 2141 – Depreciation of fixed assets: reflects the depreciation value and other increases and decreases in depreciation of tangible fixed assets
- Account 2142 – Depreciation of financial leased fixed assets: reflects the depreciation value and other increases and decreases in financial leased fixed assets during use due to depreciation
- Account 2147 – Depreciation of investment real estate:reflects the depreciation value of investment real estate used for operating lease
Diagram 1.1: Tangible fixed asset accounting diagram
1.1.4.4 Depreciation of fixed assets a Concept
Depreciation of fixed assets refers to the systematic assessment and allocation of the original cost of these assets, accounting for their wear and tear over time This process is essential for accurately reflecting the asset's value and is incorporated into production and business costs throughout the asset's useful life.
Accumulated depreciation of fixed assets refers to the total depreciation amount deducted from production and business expenses This cost is added to the beginning balance of accumulated depreciation at the start of each period Various methods can be employed to calculate depreciation.
This is a depreciation method that calculates at a stable rate each year into the business's production and business costs.
Depreciation is divided equally and fixed in each business period
Fixed assets are rapidly depreciated: machinery, equipment, laboratory tools, management tools, and animals,…
The formula for calculating fixed assets is depreciated according to the straightline method:
The monthly depreciation rate = The annual depreciation rate
The annual depreciation rate = Original cost of fixed assets
This is a method applied to businesses doing business in technology fields that require rapid change and development.
To determine the depreciation time of fixed assets, enterprises determine the time in Circular No 45/2013/TT-BTC
Formula to determine the annual depreciation of fixed assets in the first years:
Declining balance rate Depreciation rate of fixed assets according to the straight-line method x Adjustment coefficient
Depreciation rate of fixed assets according to the straight-line method
Depreciation period of fixed assets
The annual depreciation rate of fixed assets
= Book value of fixed assets x Declining balance rate
The adjustment coefficient will be specified as follows:
Depreciation period Adjustment coefficient y ≤ 4 years 1.5
Fixed assets involved in business activities that are depreciated using this method are machinery and equipment that satisfy the following conditions:
- Directly related to product production
- Determine the total quantity and volume of products produced according to the design capacity of the fixed assets
- Average actual monthly usage capacity in a fiscal year is not less than 100% of design capacity (Linh, 2024)
The monthly/yearly depreciation rate
Number of products produced in month/year x
The average depreciation rate calculated for a product unit
The average depreciation rate calculated for 1 product unit
= Original price of fixed assets
Quantity according to design capacity
According to Clause 1, Article 9 of Circular 45/2013/TT-BTC, as amended by Clause 4, Article 1 of Circular 147/2016/TT-BTC, certain types of fixed assets are exempt from depreciation requirements for businesses.
- Fixed assets have been fully depreciated but are still being used for production and business purposes
- Fixed assets managed by the enterprise but not owned by the enterprise (except financial leased fixed assets)
- Fixed assets are not monitored and accounted for in the enterprise's books
- Fixed assets serving the field of welfare and employee care(dining facilities, medical rooms, restrooms, vocational training facilities, etc.)
Diagram 1.2: Fixed asset depreciation accounting diagram
THE PROCESS OF FIXED ASSETS AUDIT IN
Overview of Financial statement audit
1.2.1.1 Concept of financial statement audit
An audit is the systematic examination and collection of documents and evidence pertaining to a business's economic and financial information, culminating in a report that assesses the company's financial status.
Financial statement: is an enterprise's document, which includes information about the economic, financial, business situation and cash flows of the enterprise presented by an accountant
Financial reports are divided into 04 common types depending on the level of use: Income statement; Cash flows statement; Changes in equity statement; Balance sheet (including capital and assets)
A financial statement audit involves auditors and their assistants gathering documents and evidence to verify the accuracy of accounting data This process enables them to provide an opinion on the reasonableness of the audited financial statements in relation to the applicable standards.
1.2.1.2 Assertion and objectives of financial statement audit
General performance goals: Collect evidence to form opinions about the truthfulness and reasonableness of information on the financial declaration
The primary objectives of a general audit include reviewing and assessing the recorded amounts across various cycles, while emphasizing the manager's accountability for the accuracy of information gathered through actual surveys conducted within the enterprise.
1.2.2 Contents of Fixed Asset Audit in Financial Statement Audit
1.2.2.1 Concept of Fixed assets audit
Fixed asset audit: is to collect documents and evidence to check and confirm the truthfulness of items related to fixed assets presented in the enterprise's financial statements
Fixed assets constitute a significant portion of an enterprise's total asset value, making them a critical focus during financial statement audits.
1.2.2.2 Necessary documents when auditing fixed assets
To prepare for the audit of fixed assets, the auditor will request the business to provide the following documents:
- Ledger, detailed account books related to fixed assets operations
- Depreciation table of fixed assets during the period
- List of construction in progress
- Minutes of fixed asset inventory
- Documents related to fixed assets
- Detailed table of types of fixed assets increased, decreased, liquidated, sold, and transferred during the period according to each type
1.2.2.3 Assertion and objectives of fixed asset audit
Assertions are statements made by a company's board of directors regarding the items and information in financial statements These assertions, whether communicated directly or through other means, serve as a critical resource for auditors in assessing potential types of errors According to the Vietnamese auditing standard VSA 315, understanding these assertions is essential for identifying and evaluating significant risks of material misstatement in the audited entity and its environment.
Auditors use the following assertions to review potential errors during the audit process: (1) Existence, (2) Completeness,
(3) Evaluation and allocation, (4) Rights and obligations, (5) Presentation and explanation
Auditing fixed assets is essential for identifying errors in the calculation of original costs, repair expenses, and depreciation, ensuring the reliability and accuracy of financial statements This process provides auditors with a framework to develop suitable audit procedures for clients, enabling them to gather adequate evidence and form opinions on the trustworthiness of financial reports.
Auditing fixed assets is a crucial component of the audit process, as these assets represent significant value for an enterprise This evaluation allows auditors to assess how effectively a business utilizes and invests in its fixed assets, ultimately guiding administrators in making informed investment decisions and strategic plans.
The assertion for the fixed asset item is used by the auditor to develop audit objectives for the fixed asset item:
Table 1.2: Objective of fixed asset audit
1 Ensure that tangible fixed assets E/ Existence recorded in the ledger are present at the end of the accounting period
Accurately record tangible fixed assets and associated costs in the fixed asset register and general ledger at the end of the accounting period, ensuring they meet the recognition standards.
Ensure that tangible fixed assets increased or decreased in foreign currency are converted at the appropriate exchange rate
4 Ensure full provision for depreciation costs of tangible fixed assets V/ Evaluate
It is essential for the unit to possess or have legal rights to all tangible fixed assets recorded in the ledger by the end of the accounting period Any restrictions on the use, ownership, or rights associated with these assets must be clearly identified and disclosed in the financial statements to ensure transparency and compliance.
6 Ensure all necessary disclosures relating to tangible fixed assets are accurately prepared and that this information is appropriately presented
P&D/ Presentation and explanation and described in the financial statements
1.2.2.4 Some common errors and frauds in fixed asset audits a Errors
- Do not conduct an inventory of fixed assets at the end of the period
- On the inventory record, fixed assets that are no longer in use or awaiting liquidation are not classified
- There is no handover record when putting fixed assets into use
- Fixed asset records are incomplete and do not have detailed books/cards for each type of fixed assets
- Not accounting for fixed assets in the correct period, accounting for an increase in the original cost of fixed assets not in accordance with the prescribed regime
- Incorrect classification of intangible fixed assets
- Accounting does not record fixed assets for assets that have met the criteria for recognition as fixed assets
- Embezzlement of assets, falsification of papers, documents, and embezzlement of public funds
- Fake invoices, intentionally increase the purchase price of fixed assets compared to reality
- Concealing and intentionally not accounting for operations for personal purposes
- Intentionally depreciating fixed assets that have been depreciated to their full value
1.2.3 The process of fixed asset audit
1.2.3.1 Planning stage a Consider customer acceptability
Audit firms must prioritize independence, service capacity, and the integrity of client management when maintaining existing clients and evaluating new ones, as outlined in VSA No 220 on "Quality Control of Audit Activities." Proper assessment of audit acceptability is crucial, as taking on new clients or continuing with existing ones can elevate risks to the auditor's operations and potentially damage their reputation.
For new clients, auditors must first determine the purpose behind the audit request and gather relevant details about the business sector, financial health, and strategic direction This is particularly crucial for publicly traded companies or those with significant debt, as auditors should enhance their information collection when the client's financial statements are extensively utilized.
Auditors must meticulously evaluate the decision to accept a client's audit request, as acceptance entails legal responsibility Additionally, it is crucial to select an appropriate audit team to ensure the effectiveness and integrity of the audit process.
To ensure a smooth and successful audit, selecting a qualified audit team is crucial The auditing firm will determine the appropriate number and qualifications of assistants based on the complexity of the audit Additionally, understanding the business's internal control system is essential for effective auditing.
Many companies today struggle with lax management practices, leading to fragmented internal control systems that hinder their ability to meet operational goals and increase associated risks To thrive in today's competitive market, businesses must enhance their efficiency and focus on achieving sales targets.
Researching a client's internal control system aims to evaluate control risks and pinpoint weaknesses and errors, enabling auditors to develop a tailored audit plan that mitigates risks to an acceptable level A comprehensive understanding of the internal control system concerning fixed assets encompasses two key aspects.
- How is the internal control system for fixed assets built by the enterprise?
- How does the enterprise implement that internal control system?
In addition, auditors can perform audit surveys through other methods:
- Observe the actual management of fixed assets of the enterprise
- Interviewing personnel in the company
- Check fixed asset books and documents: detailed books, card books, detailed records for each type of fixed assets.
- Check relevant documents and books
- Fully review procedures for purchasing fixed assets, check documents and project cost calculation tables for fixed assets increased due to construction in progress
AUDIT OF FIXED ASSETS IN THE FINANCIAL
OVERVIEW OF FAT AUDITING AND FINANCE
Formation and Development of FAT Auditing & Financial Consulting LLC
FAT Auditing & Financial Consulting LLC specializes in auditing, finance, and taxation, offering a comprehensive range of services such as independent and internal auditing, tax consulting, financial advisory, and training Licensed by the Department of Planning and Investment of Da Nang City, FAT is qualified to perform audits for diverse enterprises across all economic sectors The company is headquartered at 418 Doan Khue Street, Khue My Ward, Ngu Hanh Son District, Da Nang City.
With six years of growth and a leadership team boasting nearly 20 years of industry experience, FAT has built a strong reputation in the market The company has earned the trust of numerous clients, who value the high quality and promptness of its accounting, auditing, and tax consulting services.
FAT has gained substantial success and support from diverse corporations and enterprises, leading to its engagement in financial statement audits, tax advisory, and financial consulting services This experience has bolstered FAT's credibility and established it as a trusted provider of professional services, recognized for its quality, capability, and expertise.
2.1.2 Organizational Structure of FAT Auditing & Financial Consulting LLC
FAT's management team is composed of seven essential members, including auditors, lawyers, and certified accountants, all of whom possess significant experience and professional expertise The company's organizational structure is visually represented in the accompanying diagram.
Diagram 2.1: Organizational Chart of the Management Structure of FAT Auditing & Financial Consulting LLC
DEPUTY GENERAL DIERCTOR GENERAL DIERCTOR
The General Director serves as the company's legal representative, tasked with safeguarding and advancing its interests in legal matters This role involves carefully evaluating risks related to economic contracts, necessitating a thorough understanding of different business sectors Furthermore, the General Director reviews audit work, signs off on audit reports and management letters, and is responsible for discussing audit findings with clients, though this authority can be delegated.
The Deputy General Director reports directly to the General Director and adheres to State Law This role involves managing human resources, administration, planning, and other operational tasks as delegated by the General Director.
The Administration & Accounting Department plays a crucial role in managing the company's administrative procedures and processes, ensuring employee rights and benefits while fostering a fair working environment This department is also responsible for the company's accounting activities, guaranteeing timely and accurate financial reporting and record-keeping.
This department is responsible for executing economic contracts related to financial statement audits and consulting engagements.
This department is in charge of auditing infrastructure and construction projects.
The Legal Department provides advisory services, makes legal recommendations, and offers legal consultation to the company's management.
2.1.3 Audit Process for Financial Statements at FAT Audit and Finance Co., Ltd.
The financial statement audit process at FAT Audit and Finance Co., Ltd follows the standardized audit program (SAP) established by the Vietnam Association of Certified Public Accountants (VACPA) This comprehensive process is divided into three key phases: audit planning, audit execution, and audit completion.
Audit planning, as outlined in Auditing Standard No 300, is crucial for auditors to concentrate on significant audit areas It aids in the efficient allocation of tasks, execution, supervision, and coordination, while also enabling timely responses to emerging issues and the mitigation of unexpected risks, as stated in Circular No 214 from the Ministry of Finance.
Recognizing the significance and importance of audit planning, FAT Audit and Finance Co., Ltd has established the following audit planning procedures:
Preparation for audit planning: Client acceptance, assignment of auditors, and signing of the audit engagement contract.
Understanding and gathering client information
Assessing materiality and audit risk
Developing a comprehensive audit plan and preparing the audit program
At the start of the audit process, FAT will supply the client with a comprehensive list of necessary documents and data to facilitate optimal preparation for a successful audit.
The audit execution phase is the next step after signing the audit engagement contract with the client During this phase, FAT primarily performs the following tasks:
Reviewing and analyzing the client’s accounting data, which may be obtained from detailed ledgers, trial balances, fixed asset depreciation schedules, etc.
Auditors can employ various audit testing methods, including substantive transaction testing and detailed balance testing They have the option to either select samples for examination or conduct 100% testing of all elements During this process, transactions are carefully reviewed for their content, accounting treatment, and valuation to identify any irregularities.
Reconciliation of account balances between detailed ledgers and general ledgers, and comparison of current- year balances with prior-year balances to meet audit objectives.
Auditors utilize analytical procedures, which involve calculations, comparisons, and investigations, to uncover the reasons behind unusual variances over different time periods Although these procedures do not directly reveal misstatements in financial statements, they play a crucial role in pinpointing significant areas that necessitate more in-depth testing, thereby enhancing the overall effectiveness and thoroughness of the audit process.
Upon identifying any errors or discrepancies, FAT promptly engages with the Board of Directors, Chief Accountant, or pertinent accounting staff to implement necessary adjustments in accordance with Vietnamese Accounting Standards (VAS).
Based on the work performed during the audit execution phase, FAT proceeds with the following steps in the audit completion phase, documented in working papers:
Review, approval, and issuance of reports
Management letter and other advisory recommendations for the client
Audit report and financial statements
The audit completion steps follow this sequence:
Summarizing and processing audit findings:
This phase involves consolidating working papers and summarizing the findings from audit procedures in a structured format, categorized by account balances and specific financial statement line items.
The Board of Directors and the Audit Engagement Partner will draft a report based on the compiled audit results and supporting documents, including the Management’s Explanatory Report and Confirmation Letters This report will encompass the Audit Report, a summary of the Financial Statements, and a list of proposed adjusting journal entries for the financial statements.
Summarizing Key Issues and Issuing the Management Letter (If Necessary)
During this phase, a collaborative dialogue occurs between FAT Audit and Finance Co., Ltd and the client company The auditor reviews subsequent events post-financial reporting and audit completion dates to ensure the accuracy of audit evidence Based on the findings, the auditor offers recommendations related to accounting policies, taxation, and financial management Subsequently, both parties engage in discussions to determine the most suitable accounting treatments.
Upon finalizing these discussions, FAT will approve and issue the final audit report on the financial statements Additionally, a Management Letter will be issued if deemed necessary.
Issuance of the Final Audit Report
Once all figures and audit opinions are finalized, FAT proceeds with the official issuance of the Audit Report on the Financial Statements to the client.
Finish the Audit
This is the final stage of the audit, during which the auditor consolidates the audit findings, forms an opinion, and issues the audit report and the formal management letter.
2.3.1 Establish audit opinions – B140 – Refer to Appendix 21
Ensure to provide appropriate audit opinion form and complete information as prescribed by VSA no 700, 705, 706.
The audit team leader collects all working papers from team members to summarize issues encountered during the audit process The auditor then compiles findings for each significant item and presents them in the Audit Summary Working Paper, which includes assessments, recommendations, and opinions regarding each item.
The audit team leader reviews identified issues with the client's Chief Accountant and senior management to gather feedback on necessary adjustments Ultimately, the leader summarizes any significant misstatements proposed for correction that the client chose not to address.
The audit team leader and manager at ABC Company verified that working paper D700 contained a thorough examination of all essential information needed to meet the audit objectives, with the documentation being clear and well-organized.
At ABC in 2024, certain issues arose regarding fixed assets that required adjustments The auditor proposed a resolution, and ABC's Chief Accountant agreed to implement the adjustments.
Once all these steps are completed, the audit team leader forms the appropriate audit opinion and prepares the audit report
2.3.2 Summary of audit results – B410 – Refer to Appendix 22
The auditor collects and categorizes audit findings, such as accounting errors and internal control weaknesses, assessing their impact and root causes on financial statements Following this, an overall analysis is performed to identify whether the misstatements are systemic or isolated Finally, the auditor engages with management to confirm the accuracy of the findings and considers any adjustments or explanations offered by the company.
Summary of results of checking issues discovered during the planning phase.
The company initially recorded the accumulated depreciation reduction of liquidated transportation equipment into Account
The misclassification of depreciation expenses occurred when VND 66,702,875 was incorrectly recorded in Account 2142 – Depreciation of Machinery and Equipment, instead of the correct Account 2143 – Depreciation of Transportation Equipment This error can lead to an inaccurate representation of depreciation across various fixed asset categories, potentially affecting financial reporting.