FACULTY OF ACCOUNTING – AUDITING ---***--- GRADUATION THESIS Topic: IMPROVING THE AUDIT PROCESS FOR FIXED ASSETS IN FINANCIAL STATEMENT AUDITS CONDUCTED BY DELOITTE VIETNAM... Current S
The relevance of the topic
In today's economy, financial statement auditing plays a crucial role in maintaining the transparency and reliability of the financial system, thereby fostering stability and sustainable economic development Businesses and stakeholders such as investors, credit institutions, and regulatory agencies rely heavily on the financial information provided through financial statements to make critical economic decisions While financial items such as cash, inventory, revenue, and expenses are often the focus of audits, fixed assets (FA) remain a particularly important item for most businesses Fixed assets account for a significant portion of a company's total assets and directly impact on its long-term development, especially in the manufacturing, construction, and transportation industries
Auditing fixed assets not only helps assess the accuracy of financial information but also detects and prevents errors or irregularities related to the recognition and management of fixed assets Fixed assets are high-value, long-term assets, and therefore, the audit process for these assets requires precision, diligence, and strict compliance with accounting standards Errors in recognizing, depreciating, or revaluing these assets can significantly affect a company's business performance and financial position Thus, improving the audit process for fixed assets to ensure the accuracy and reasonableness of these items in financial statements is an essential task
With the strong development of the market economy, businesses are increasingly facing changes and challenges in asset management, especially in the context of deep international integration and the rise of Industry 4.0 Companies must continuously expand production scale, invest in new machinery and equipment, and maintain fixed assets to meet development needs However, managing and auditing these assets is not always straightforward, as transactions related to fixed assets are often complex and have a significant impact on other items in financial statements Audit firms, particularly Deloitte Vietnam, must constantly strive to improve their audit processes to meet the growing demands of clients while ensuring transparency and accuracy in financial reporting
Especially in the context of Vietnam's rapidly transforming and developing economy, the demand for high-quality financial auditing has become increasingly urgent
Improving the fixed asset audit process will enhance the overall quality of audits, minimize the risk of errors and fraud, and ensure the stability and reliability of financial statements This not only benefits businesses but also enhances the reputation and service quality of audit firms, including Deloitte Vietnam
Recognizing the importance of fixed assets in financial statement auditing, I have chosen the topic "Improving the Audit Process for Fixed Assets in Financial Statement Audits Conducted by Deloitte Vietnam Company Limited" for my graduation thesis This topic is not only theoretical but also highly practical, helping to improve the audit process at Deloitte Vietnam and the auditing industry in general, while contributing to the enhancement of audit service quality in an ever-changing economic environment.
Research Overview
In the field of financial statement auditing, fixed assets (FA) have always been an important and complex item, attracting the attention of numerous studies These studies primarily focus on improving the audit process for fixed assets to enhance audit efficiency and reduce risks in evaluating and confirming the accuracy of these items in financial statements
One notable study is the thesis by Nguyễn Trường Giang (2021) titled "Improving the Audit Process for Fixed Assets in Financial Statement Audits Conducted by Deloitte Vietnam Company Limited." This research provides a detailed look at the fixed asset audit process at Deloitte, particularly the application of information technology to support auditors, and compares Deloitte's process with that of smaller audit firms
In the same year, Nguyễn Khánh Duy Anh, in his thesis "Evaluating the Differences
Between Vietnamese Accounting Standards (VAS) and International Financial Reporting Standards (IFRS) Affecting the Audit Process for Fixed Assets in Financial Statements," clarified the differences between the two accounting standards and their impact on the fixed asset audit process These analyses help identify changes in the recognition and evaluation of fixed assets and highlight necessary adjustments in the audit process
Additionally, Nguyễn Thị Quỳnh's (2022) research on "Improving the Audit Process for Fixed Assets in Financial Statement Audits Conducted by AASC Auditing
Firm" clarified the theory of tangible fixed asset auditing while evaluating the strengths and weaknesses of AASC's audit process, proposing solutions and recommendations for improvement
However, despite the numerous studies on the fixed asset audit process, there remains a gap in this research, particularly in smaller audit firms such as CPA Vietnam Auditing Company Limited Furthermore, while tangible fixed asset auditing has been studied, it has not been presented in a detailed and systematic manner
Notably, research also indicates that, in practice, the tangible fixed asset audit section is often assigned to interns or less experienced auditors, making the audit process challenging and risky Further research into the theory and process of fixed asset auditing will help refine the audit process, reduce risks, and improve the quality of financial statements
To date, many theses have studied the fixed asset audit process at major audit firms such as Deloitte, AASC, and BDO Each study outlines the theory and current state of the audit process at these firms, evaluates strengths and weaknesses, and proposes improvement solutions However, these studies lack detailed comparisons of the fixed asset audit process across different clients, particularly between first-year clients and long-term clients
Other notable studies include the thesis "Improving the Audit Process for Fixed
Assets in Financial Statement Audits Conducted by Deloitte Vietnam Company Limited" by
Phạm Văn Chiều (2022) and "Improving Audit Procedures of Fixed Assets in an Audit of
Financial Statements at Deloitte Vietnam Company Limited" by Nguyễn Thị Thu Thảo
(2020) However, both studies primarily focus on non-first-year clients and do not clarify the differences in the audit process between new and long-term clients
To meet the demand for improving the fixed asset audit process in the current context, deeper research is needed on the audit practices at smaller audit firms and comparisons of audit processes across different clients This will provide a basis for proposing specific solutions to improve the fixed asset audit process at audit firms in general and Deloitte Vietnam in particular.
Research Objectives
This thesis focuses on studying the audit process for fixed assets (FA) in financial statement audits conducted by Deloitte Vietnam Company Limited The research aims to evaluate the current state of fixed asset auditing and propose solutions to improve the audit process at Deloitte Vietnam Specifically, the research objectives of the thesis include:
1 Summarize the theoretical framework for auditing fixed assets in financial statement audits: Systematize general theoretical issues related to fixed asset auditing in financial statement audits This provides a theoretical foundation for researching and evaluating the fixed asset audit process at Deloitte Vietnam
2 Describe the current state of fixed asset auditing at Deloitte Vietnam: Analyze the current state of fixed asset auditing in financial statement audits conducted by Deloitte Vietnam for specific clients, highlighting the strengths, limitations, and causes of the current situation
3 Propose solutions to improve the fixed asset audit process: Based on the analysis of the current state, the thesis will propose corrective solutions to enhance and refine the fixed asset audit process in financial statement audits at Deloitte Vietnam, thereby improving audit quality and increasing the accuracy and transparency of financial statements
Research Scope
Research Period: From December 16, 2024, to March 14, 2025
ABC Joint Stock Company (anonymized name of the audit client)
Research Content: Study the audit process for fixed assets (FA) in financial statement audits at Deloitte Vietnam Company Limited Evaluate the current state and effectiveness of the fixed asset audit process in financial statement audits for specific clients of Deloitte Vietnam during the 2023-2024 period
Data Sources: Data collected from working papers and audit software stored in the audit files of Deloitte Vietnam Company Limited and audit reports of audited enterprises during the 2023-2024 period The names of audit clients are kept confidential and replaced with the anonymized name "ABC Joint Stock Company" under auditing confidentiality principles (as per Vietnamese Auditing Standard No
Research Questions
The study will address the following key questions:
What steps are involved in the fixed asset audit process at Deloitte Vietnam?
What standards and methods are currently being applied by Deloitte in auditing fixed assets?
What are the strengths and limitations of the fixed asset audit process at Deloitte Vietnam? What adjustments or improvements are needed to enhance the quality of fixed asset auditing at Deloitte Vietnam?
This thesis employs several research methods to analyze and address issues related to the audit of fixed assets (FA) in financial statement audits The main research methods applied in the thesis include:
The study uses actual data from the financial statement audit process for fixed assets at a company audited by Deloitte Vietnam Company Limited This data is collected from audit files and audit reports of the company for the period 2023-2024 Additionally, data related to the audit process and information from financial statements are used as the basis for research
This method is used to compare the theoretical and practical aspects of the fixed asset audit process in financial statement audits The comparison helps clarify the differences between theoretical regulations and their practical application at Deloitte Vietnam, thereby evaluating the effectiveness and identifying areas for improvement
The study uses analytical methods to delve into aspects related to fixed asset auditing, providing a detailed analysis of factors influencing the audit process After analysis, the synthetic method is applied to connect the results and propose comprehensive solutions to improve the fixed asset audit process at Deloitte Vietnam
The study utilizes official documents such as Vietnamese Auditing Standards, Vietnamese Accounting Standards, circulars, decrees related to auditing, and transparent financial reports from Deloitte Vietnam These documents provide theoretical information and a legal foundation for researching and evaluating the fixed asset audit process
The study also applies practical survey methods through interviews, observations, and information collection from auditors and audited companies This allows for the collection of primary data directly from the audit process, clarifying specific issues in practical auditing
Interview and observation methods are used to gather information from auditors and companies Through interviews, the author gains a deeper understanding of the audit process, procedures, and the practical challenges auditors face when auditing fixed assets
In addition to the introduction and conclusion, the thesis consists of three main chapters:
Chapter 1: Theoretical Basis of Auditing Fixed Assets in Financial Statement Audits Chapter 2: Current Status of the Audit Process for Fixed Assets in Financial Statement Audits Conducted by Deloitte Vietnam Co., Ltd
Chapter 3: Some Solutions to Improve the Audit Process of the Fixed Assets Item in the Financial Statement Audit Conducted by Deloitte Audit Co., Ltd
The thesis will provide a comprehensive overview of fixed asset auditing at Deloitte Vietnam, thereby proposing practical solutions to enhance the quality and efficiency of auditing in the new context.
THEORETICAL BASIS OF THE AUDITING PROCESS FOR THE FIXED
Characteristics of the Fixed Asset Item
1.1.1 Concept and Nature of the Fixed Asset Item
Fixed assets (FA) are one of the important items in an enterprise's financial statements, playing a crucial role in production and service provision Fixed assets are defined as assets with significant value, long useful lives, and participation in multiple business production cycles without being consumed or sold during a normal operating period According to the Vietnam Accounting Standards (VAS), fixed assets must meet the following criteria:
1 Certainty of obtaining future economic benefits: Fixed assets must provide benefits to the enterprise over an extended period, demonstrated through their ability to generate revenue or reduce costs in business production activities
2 Original cost can be determined: The original cost of fixed assets must be clearly identified and verifiable based on valid documents such as invoices, contracts, handover minutes, etc
3 Useful life of one year or more: Fixed assets must have a long useful life, typically exceeding one year, allowing depreciation costs to be allocated gradually over the years
4 Not intended for sale in the normal production and business cycle: Fixed assets are involved in the production and service provision processes and are not sold directly during the operating period
Fixed assets can be classified into the following types:
Tangible fixed assets: These are assets in a physical form, such as buildings, machinery and equipment, vehicles, and transmission devices
Intangible fixed assets: These are assets without a physical form, such as land use rights, patents, computer software, and trademarks
Finance-leased fixed assets: These are assets leased from a lessor under a finance lease, where the lessee gains ownership of the asset after the lease term ends
The nature of fixed assets lies in their role as primary means of production that the enterprise uses in the process of production and service provision, rather than being sold within the normal production and business cycle Although fixed assets are not involved in sales during the period, they play a vital role in generating profits for the enterprise through their use in long-term production activities
From an accounting perspective, fixed assets are typically recorded and accounted for based on their historical cost, minus accumulated depreciation Consequently, the management and control of fixed assets during the auditing process are critical in ensuring the reliability of financial statements while also identifying errors in the recognition and depreciation of assets
1.1.2 Accounting for the Fixed Asset Item
Accounting for fixed assets is an indispensable part of an enterprise’s accounting system, particularly for businesses with significant investments in infrastructure and machinery Fixed assets (FA) include assets with substantial value and long useful lives, participating in production and service provision processes without being consumed during a normal operating period Fixed asset accounting involves not only recording the initial costs when an enterprise acquires assets but also performing accounting procedures related to calculating and allocating depreciation expenses, recognizing impairments of fixed assets, and handling transactions involving increases or decreases in assets throughout their usage period
According to Circular 200/2014/TT-BTC issued by the Ministry of Finance, fixed assets must be recorded at their original cost, which includes all expenses incurred by the enterprise to acquire the fixed asset, such as purchase price, transportation costs, installation costs, taxes (excluding refundable taxes), and other costs related to bringing the asset to a ready-to-use condition The original cost of the fixed asset serves as the basis for calculating depreciation throughout its useful life Specifically, Article 17 of Circular 200 stipulates that “Fixed assets are recorded at their original cost, including acquisition costs, transportation, installation, and other costs related to bringing the asset to a ready-to-use condition.” For finance-leased fixed assets, the original cost is recorded as the value of the asset at the start of the lease contract plus any costs arising from the finance lease activities (Article 16 of Circular 200)
When acquiring fixed assets, accounting must record these assets in the books at their original cost, encompassing acquisition costs, transportation, installation, and other expenses related to making the asset ready for use The original cost is the initial value of the asset, including the purchase price, taxes, and costs incurred to bring the asset into operation This original cost forms the basis for calculating depreciation over the asset’s useful life Depreciation of fixed assets involves allocating the asset’s value to production and business expenses throughout its usage period Depending on the type of asset and the depreciation method chosen by the enterprise, depreciation expenses will impact the enterprise’s profit and financial position
Circular 200/2014/TT-BTC also clearly stipulates the depreciation methods for fixed assets According to Article 24, enterprises may apply the following depreciation methods:
Straight-line depreciation method: This is the simplest and most widely used method
Under this method, the enterprise allocates a fixed portion of the asset’s value evenly over its useful life each period
Declining balance depreciation method: This method allows the enterprise to allocate higher depreciation expenses in the early years of the asset’s use It is suitable for assets that experience rapid wear and tear in their initial years
Adjusted declining balance depreciation method: This method is similar to the declining balance method but adjusts the depreciation rate in subsequent years to avoid excessive depreciation relative to the asset’s remaining value
In addition to depreciation, accounting must also handle other transactions related to fixed assets, such as disposal, transfer, or impairment When a fixed asset no longer has useful value, the enterprise will proceed with its disposal or sale Gains or losses from the disposal of the asset will be recorded in the financial statements Furthermore, assets may lose value due to wear and tear or other factors such as technological changes, market conditions, or natural deterioration These impairments must be recorded in the financial statements to accurately reflect the enterprise’s financial position
The accounting accounts related to fixed assets include Account 211 (Tangible Fixed Assets), Account 212 (Finance-Leased Fixed Assets), and Account 213 (Intangible Fixed Assets) These accounts are used to track changes in the value of fixed assets during their usage, from acquisition and depreciation to disposal or transfer For tangible fixed assets, Account 211 records the value of all tangible fixed assets owned by the enterprise For intangible fixed assets, Account 213 records the value of assets such as land use rights, software, trademarks, copyrights, or other intangible assets owned by the enterprise Account 214 records the wear and tear of fixed assets and investment properties, tracking the depreciation allocated in the period and updating the cumulative depreciation of the assets
A critical aspect of fixed asset accounting is maintaining accuracy in asset tracking Enterprises need a robust management system for fixed assets, including periodic asset inventories, assessments of usage conditions, and maintenance This helps prevent risks of loss or wastage of assets and ensures they remain in good operating condition The internal control system for fixed assets must be established and maintained rigorously to ensure that all fixed assets are fully and accurately recorded at their correct value in financial statements
1.1.3 Risks Related to the Fixed Asset Item
Risks of the Recognition of Fixed Assets
One of the most common violations is the incorrect recognition of fixed assets at their actual original cost This can occur when an enterprise fails to fully record all costs incurred in acquiring and bringing the asset to use For example, costs such as transportation, installation, testing, or other related expenses might be overlooked, resulting in an undervaluation of the assets Incomplete recognition of fixed assets can affect depreciation calculations and distort the enterprise’s operating results This may violate
VSA 500 - Audit Evidence, which requires auditors to obtain sufficient and appropriate evidence to verify that assets are accurately recorded in the financial statements
Additionally, another violation involves recognizing fixed assets in a manner inconsistent with accounting standards According to Circular 200/2014/TT-BTC, fixed assets must meet certain conditions, such as providing certain future economic benefits, having a determinable original cost, and a useful life exceeding one year However, there may be cases where an enterprise recognizes assets that do not fully meet these conditions, leading to errors in the presentation of fixed assets in the financial statements VSA 200 -
Objectives of an Audit of Financial Statements requires auditors to ensure that assets are recorded correctly and reflect the enterprise’s true financial position
CURRENT STATUS OF THE AUDIT PROCESS FOR FIXED ASSETS IN
Overview of Deloitte Vietnam Co., Ltd
2.1.1 History and Development of Deloitte Vietnam Co., Ltd
Stemming from the practical needs of Vietnam’s socialist-oriented market economy during the early years of the renovation process, the Vietnam Auditing Company (VACO), the predecessor of Deloitte Vietnam Co., Ltd., was established under Decision No 165/TC/QĐ-TCB of the Ministry of Finance on May 13, 1991 In 1992, the company began collaborating with Deloitte Touche Tohmatsu (DTT), one of the world’s leading audit firms In April 1994, the VACO-DTT joint venture was officially formed By October 1997, VACO was officially recognized as a member of the international audit firm Deloitte Touche Tohmatsu
On June 20, 2003, the Ministry of Finance issued Decision No 1927/TC/QĐ/TCCB, officially converting VACO into a single-member limited liability company wholly owned by the Ministry of Finance and renaming it the Vietnam Auditing Company Limited The year 2007 marked a historic turning point for Deloitte Vietnam when VACO became the first state-owned enterprise to successfully transition into a multi-member limited liability company without state capital At the same time, it became an official member of Deloitte Global and began operating under the Deloitte Vietnam brand On November 1, 2007, the company officially changed its name from Vietnam Auditing Company Limited to Deloitte Vietnam Audit Company Limited VACO formally became a member of Deloitte Touche Tohmatsu and adopted the new name Deloitte Vietnam
Over more than 25 years of operation, Deloitte has consistently achieved outstanding results, establishing itself as a leading audit firm in Vietnam and one of the top four audit companies with the highest revenue In 2007, Deloitte Vietnam was honored with the Management Star Award by the Ministry of Foreign Affairs In 2009, the company received the Red Star Award for the audit firm with the most effective management and control system These prestigious achievements affirm Deloitte’s leading position in Vietnam’s audit industry
General Information About the Company:
Full Name: Deloitte Vietnam Audit Company Limited
English Name: Deloitte Vietnam Audit Company Limited
Headquarters: 15th Floor, Vinaconex Building, No 34 Lang Ha Street, Dong Da
Type: Limited liability company with two or more members
Deloitte Vietnam is committed to providing the best services to its clients with a professional and dedicated attitude, striving to earn their trust Deloitte is guided by its mission: "Making an impact that matters," which defines its purpose, perseverance, and commitment to uniting its workforce to create an impact on the world through its work Small changes lead to significant differences As a result, Deloitte Vietnam has continued to grow strongly, achieving numerous milestones and solidifying its role as a leading audit firm in Vietnam today
The company’s business performance can be assessed through its operating results and financial position in recent years:
Table 2.1: Income Statement for the Last 3 Years
Taxes Paid to State Budget 212,385 94,877 88,972
Source: Enterprise Transparency Reports for the Last 3 Years
Deloitte does not heavily focus on auditing financial statements for entities with the public interest; annual revenue from this activity ranges from approximately VND 40-50 billion Most of Deloitte’s revenue comes from auditing non-public interest entities and other services
In the revenue structure of previous years, other services were a standout segment, often generating more profit than financial statement audits and contributing over half of total revenue In 2024, this segment brought in over VND 500-600 billion However, by
2024, revenue from other services dropped sharply to only VND 23.6 billion, which was the primary reason for a significant decline in total revenue (approximately 50%) Meanwhile, revenue from auditing financial statements for non-public interest entities remained stable, reaching VND 493 billion in 2024 Deloitte Vietnam showed signs of a slight recovery in 2024 compared to the previous year, but it remains far from the peak revenue levels of prior years
2.1.2 Characteristics of Management and Business Operations of Deloitte Vietnam
Deloitte Vietnam operates with two offices in Hanoi and Ho Chi Minh City, forming part of a Southeast Asia network comprising 21 offices With over 30 years of establishment and operations in the Vietnamese market, Deloitte Vietnam’s team of more than 1,000 professionals provides services that help businesses overcome challenges, achieve continuous growth, and maintain competitiveness in an ever-changing market environment
Through this extensive network, Deloitte Vietnam delivers high-quality professional services to its clients, including:
1 Audit & Assurance Services: Deloitte Vietnam was built on the foundation of
VACO and the global Deloitte network Audit services are a core strength and the primary revenue source, accounting for approximately 80% of the company’s annual revenue In-depth knowledge of clients’ industries enables Deloitte Vietnam to meet efficiency requirements and support business operations through audit engagements Deloitte Vietnam’s clients span all 64 provinces and cities, including leading state- owned corporations such as EVN and Petrovietnam, private enterprises, hotels, foreign-invested companies, major banks, and financial institutions
Key Audit & Assurance services include:
+ Auditing financial statements as required by regulations
+ Auditing internal control systems related to financial reporting
+ Accounting and financial reporting advisory
+ Accounting operations advisory (assessment and enhancement)
+ Other assurance services, such as enterprise reporting assurance, algorithm audits, etc
2 Tax & Legal Services: Deloitte Vietnam’s Tax & Legal division comprises domestic tax consultants with extensive knowledge of Vietnam’s tax system and strong relationships with regulatory authorities, alongside a team of experienced international tax experts capable of delivering world-class tax solutions
+ Tax compliance and filing advisory
+ Domestic and international tax advisory
+ Support for resolving tax/customs disputes and related legal issues
From compliance to tax planning, Deloitte Vietnam develops tax strategies to help clients achieve their business objectives
3 Strategy, Risk & Transaction Services: Deloitte Vietnam’s Corporate Strategy
Consulting division is renowned for its high-quality corporate financial services Its experienced team of experts can design accounting systems tailored to client’s specific needs, ensuring compliance with Vietnamese accounting standards while aligning with each enterprise’s unique characteristics
+ Corporate governance and national policy advisory
4 Technology & Transformation (T&T) Services: This division leverages technology and creativity to connect businesses with their customers effectively In today’s complex world, innovative connections are essential to creating simple solutions Behind every breakthrough idea, innovative product, or technological advancement lies the collaboration between people and technology
Deloitte Vietnam applies these connections to innovative configurations to address clients’ challenges The Deloitte team brings flexibility and creative problem-solving capabilities, inspiring clients to innovate This unique approach is reflected in the "Imagine, Deliver, Run" methodology: an integrated and adaptable journey throughout the enterprise transformation process
2.1.3 Organizational structure of business operations of Deloitte Vietnam
Diagram 2.1: Organizational Structure of Deloitte Vietnam
(Source: Deloitte Vietnam Human Resources Department)
Authority and Responsibilities of Departments as Follows:
The organizational structure of Deloitte Vietnam is established to ensure efficient operations and sustainable development The company has a Board of Directors consisting of the Company Director, five Deputy Directors, and Industry Directors
The Company Director is responsible for formulating long-term business strategies, making decisions on critical policies, organizing operations, and being accountable before the law and the Member Council for all company activities The Deputy Directors assist the Company Director in management, overseeing specific service areas, ensuring revenue plans, and driving business development They are authorized to act on behalf of the Director to conduct significant transactions and are accountable for their decisions Currently, Mr David Anderson is gradually transferring leadership authority to Director Phan Văn Thịnh The Deputy General Directors include Mr Trương Anh Hùng, Mr Đặng Chí Dũng, Mr Phạm Hoài Nam, Ms Trần Thúy Ngọc, along with directors of departments such as Tax, Consulting, Risk Management, and more
Current Status of Auditing the Fixed Assets Item for the Client ABC Joint Stock
Illustration of Auditing the Fixed Assets Item in the Financial Statement Audit at Deloitte Vietnam Limited Liability Company I have chosen the financial statement audit process of ABC Vietnam Joint Stock Company for the period ending December 31, 2024 ABC Joint Stock Company is a leading enterprise in Vietnam in the field of manufacturing and trading high-end Granite tiles Since its establishment in 2001, the company has grown robustly, operating three factories located in Bac Ninh, Thai Binh, and Ba Ria-Vung Tau, solidifying its pioneering position in the construction materials industry The company possesses modern production technology and a team of professional, highly experienced, and well-trained staff who deeply understand the corporate culture, this is considered the company’s most valuable asset With a commitment to sustainable development, the company continues to maintain its leading position, meeting the increasingly high demands of both domestic and international markets
Evaluating Risks and Accepting the Audit
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Deloitte Vietnam’s risk assessment is based on eight factors outlined in working paper No 11100: Assess Engagement Risk
Table 2.2: Assessment of Engagement Risk in Performing the Audit Contract
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The following general questions aim to assist in assessing customer risks based on the following factors:
• Characteristics and integrity of the management team
The answers to these general questions and factors to consider should be based on inquiry, analytical procedures, observation, and testing
If the answer to any point is "Yes," consider recording the risk in the Risk
Detail screen to display it on the Risk Strategy View
Overall: Higher than normal level
Document the procedures performed to assess the characteristics and integrity of management
ABC Company is a Public Interest Entity (PIE) with good management characteristics and integrity, a clear organizational and management structure, and transparent business operations Through inquiries with management and the application of DPM procedures, the company has demonstrated fair financial results and received clean audit opinions in previous years
We discussed with Mr M – the Director, Ms H – the Chief Accountant, and reviewed the company’s status, conducted Google searches, and performed internet research The results showed no issues related to the client’s integrity
We also discussed with Mr H – Head of the Audit Committee; all ineffective internal control points and management characteristics needing to be reported to the Board of Directors were addressed However, to date, there have been no concerns regarding these matters
We conducted preliminary checks on the members of the Board of Directors and Executive Board and found no issues related to the characteristics and integrity of management
• Are we aware of any reason to doubt the characteristics or integrity of one or more members of management or to question the reliability of management’s representations? No
2 Organizational and Management Structure of the Company
Document the procedures performed to assess the organizational and management structure
We discussed with Mr M – Director, and Ms H – Chief Accountant: The company has established an organizational structure appropriate to its size and operations
We reviewed the company’s structure and found no risks related to the company’s organization There have been no changes to the organizational and management structure compared to the previous year
• Is the organizational and management structure inconsistent with the size and nature of the business? No
• Are the control processes inconsistent with the size and nature of the business, and are we aware of any reason to be concerned about management’s ability to effectively oversee and monitor, as well as the effectiveness of management oversight? No
3 Nature of the Company’s Business Operations
Document the procedures performed to assess the nature of the business
ABC Joint Stock Company, formerly ABC Granite Company (a state-owned enterprise), was privatized under Decision No 1X09/QĐ-BXD dated 1X/XX/200X by the Minister of Construction regarding the transformation of ABC Granite Company, under ABC’ Corporation (now ABC Corporation – JSC), into ABC Joint Stock Company The company operates under the Business Registration Certificate of a Joint Stock Company No 2300xxxxxx, first registered on 01/1X/200X and amended for the 11th time on 19/0X/202X, issued by the Department of Planning and Investment of Bac Ninh Province
The company’s primary activities include:
• Production and trading of ceramic and granite tiles and other construction materials;
• Trading of construction raw materials;
• Long-term operating cycle: 12 months;
• No use of complex financial techniques or innovations;
• Not operating in a highly volatile industry or market (the industry is relatively stable);
• Key accounting estimates are made by current regulations (including the full useful life of assets and provisions for bad debts)
• Operating in an industry typically associated with suspicious or illegal activities: No
• Conducted a significant acquisition in the past year with an entity in an industry where management has little or no prior experience: No
• Is there any reason to be concerned about the nature of the business operations? No
Document the procedures performed to assess the business environment Based on discussions with Mr M – Director, and Ms H – Chief Accountant, and a review of the company’s operations, we noted that in 2022, economic fluctuations (high inflation, reduced demand) impacted the construction industry and the company’s revenue In 2023 and 2024, although the market remained challenging, the construction industry gradually recovered thanks to supportive policies from the Vietnamese government, particularly towards the end of the year In the long term, Vietnam’s construction industry still holds growth potential, and the company could achieve high profits The company also has opportunities to penetrate international markets
• Are there external influences in the business environment affecting the operations and ongoing concern ability of the business? No
In the first nine months of 2024, the company’s revenue increased by 2% compared to the previous period but still recorded a loss of VND 12 billion However, this is a positive sign for the company as the loss significantly decreased from VND 19 billion the previous year (a 39% profit improvement), due to reduced interest expenses as the company repaid its debts
Profits increased steadily in the last six months of 2024 due to higher demand for construction materials towards year-end Planned revenue for the full year is approximately VND 2,500 billion (123% higher than the actual figure for 2023), with an expected profit of VND 30 billion (nearly five times higher than the 2023 profit)
As of September 30, 2024, the company achieved 78% of its annual revenue target
As of September 30, 2024, short-term assets were VND 68 billion lower than short- term liabilities, and the company faces significant pressure from maturing debts, though this has decreased considerably from the beginning of the year (below VND
The company is listed on the HNX; therefore, it may face pressure to generate profits and adjust earnings to enhance financial statements Consequently, we identified a risk related to management overriding controls, as noted in the anticipated risks section
Key financial performance indicators of management: