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

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

NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM -o0o - INTERNSHIP REPORT TOPIC: IMPROVING AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT CONDUCTED BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH Student : Le Hanh Dung Student ID : 11150890 Class : Auditing EEP 57B Instructor : Ph.D Nguyen Thi Thanh Diep HANOI, 2019 TABLE OF CONTENT TABLE OF CONTENT LIST OF TABLES INTRODUCTION CHAPTER 1: CHARACTERISTICS OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT CONDUCTED BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH .2 1.1 Theoretical framework of audit of fixed assets affecting on financial statement auditing 1.1.1 Definition and classification of fixed assets 1.1.2 Accounting for fixed assets 1.1.3 Common misstatements related to fixed assets 1.1.4 Internal control over fixed assets 1.2 Audit objectives of auditing fixed assets in financial audit conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch .13 1.3 Audit of fixed asset in financial audit process conducted by Vietnam Auditing and Valuation Company – Hanoi Branch 14 1.3.1 Planning the audit 14 1.3.2 Implementing the audit 19 1.3.3 Completing the audit 27 CHAPTER 2: CURRENT PRACTICE OF FIXED ASSETS AUDIT IN AUDIT FINANCIAL STATEMENT BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH 28 2.1 Planning the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 28 2.1.1 Prepare audit plan 28 2.1.2 Understand the client’s business and industry 28 2.1.3 Understand internal control 30 2.1.4 Perform preliminary analytical procedures 32 2.1.5 Assess materiality and risk 34 2.1.6 Design audit programs 36 2.2 Implementing the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch .36 2.2.1 Perform Tests of Controls 38 2.2.2 Perform Analytical Procedures .40 2.2.3 Perform of Test of Details of Balances 42 2.3 Completing the Audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 61 CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE THE AUDIT PROCESS OF FIXED ASSETS BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH .64 3.1 Assessment on the status of auditing fixed assets by Vietnam Auditing and Valuation Company Limited – Hanoi Branch 64 3.1.1 Strengths .64 3.1.2 Weaknesses 66 3.2 Recommendations to improve the audit of fixed assets in financial audit process conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch.69 3.2.1 Planning the audit 69 3.2.2 Implementing the audit 70 3.2.3 Completing the audit 74 CONCLUSION 75 REFFERENCES 76 APPANDEX 76 LIST OF TABLES Table 1.1: Detailed audit objectives for fixed assets .14 Table 1.3: List of decreased fixed assets transactions .21 Table 1.4: Detailed inspection of increased (decreased) fixed assets transactions 23 Table 1.5: Detailed inspection of fixed asset depreciation 24 Table 2.1: Table of asset structure analysis of ABC Company .33 Table 2.2: Table of the materiality for each item of AVAHN 34 Table 2.3: Table to determine the materiality at ABC Company .34 Table 2.4: Risk assessment matrix 36 Table 2.5: List of fixed assets of ABC Company 37 Table 2.6: Questions to understand internal control for fixed assets at ABC Company 40 Table 2.7: Table of analysis of rates related to fixed assets .41 Table 2.8: Excerpt from the WPs of auditors - Check the summary data of Account 211 45 Table 2.9: Reconciliation of data on the trial balance with depreciation table 46 Table 2.10: Check for abnormal reciprocal of fixed assets .47 Table 2.11: Excerpt from WPs of auditors – Checking unusual reciprocal for purchasing of fixed assets .48 Table 2.12: TSCĐ Excerpt from working papers of auditors - Table of historical cost calculation of fixed assets .52 Table 2.13: Extract from working papers of auditors - Checking details of increased fixed assets 54 Table 2.14: Checking abnormal reciprocal depreciation of fixed assets .56 Table 2.15: Excerpt from the auditor's working paper - Checking the depreciation time of fixed assets .58 Table 2.16: Excerpt from the auditor's working paper - Check the depreciation expense of fixed assets .60 Table 2.17 : Excerpts from the WPs of the auditors – Audit conclusion 63 INTRODUCTION Over thirty years of renovation and integration with the world, Vietnam's economy has been growing strongly The number of enterprises engaged in economic activities has continuously increased over the years, playing a key role in the movement and development of the country in all fields The information on the financial and nonfinancial situation of enterprises is always the top concern of investors, government, financial institutions and credit Independent auditing activities were established to protect the interests of economic entities and ensure transparency in the financial information of businesses In nearly 25 years of establishment and development in Vietnam, auditing has played a very important role in building a healthy financial information environment Enterprises use different inputs to create products, goods and services One of the important input factors that rare enterprises can lack in their business activities is fixed assets Although the transactions related to fixed assets can be said to be quite modest compared to other items, it is often of great value and accounts for a significant proportion in the asset structure of enterprises Moreover, the cost of fixed assets is gradually depreciated into expenses, affecting business results of enterprises Fixed asset audit plays an important role in the financial statement audit process Because of the important role of fixed assets, I decided to select the topic: "Improving the audit of fixed assets in financial audits conducted by Vietnam Auditing and Valuation Company Limited - Hanoi Branch" The content of the topic consists of chapters: Chapter 1: Theoretical framework of audit of fixed assets in financial statements audits Chapter 2: Current practice of fixed assets audit in audit financial statement by Vietnam Auditing and Valuation Company Limited – Hanoi Branch Chapter 3: Assessments and recommendations to improve the audit process of fixed assets by Vietnam Auditing and Valuation Company Limited – Hanoi Branch I sincerely thank teacher Nguyen Thi Thanh Diep for enthusiastically guiding me to complete the topic I would also like to express my deep gratitude to the Board of Directors of Vietnam Auditing and Valuation Company Limited in Hanoi, departments and especially the brothers and sisters in the Audit Department to facilitate I practiced at your company Due to limited practice time with my own practical experience, the topic is difficult to avoid shortcomings Therefore, I respectfully hope that the teachers and your company will make suggestions for the thematic to be completed more CHAPTER 1: THEORETICAL FRAMEWORK OF AUDIT OF FIXED ASSETS IN FINANCIAL STATEMENTS AUDITS 1.1 General overview of fixed assets 1.1.1 Definition and classification of fixed assets  Definition: Fixed assets are production materials which are used exclusively in production and business, have great value and can be used in many production cycles  Classification: According to the form of external expression: This is the current main classification in the accounting and management of fixed assets in enterprises, whereby fixed assets are divided into three categories: - Tangible fixed assets - Intangible fixed assets - Financial-leasing fixed assets Tangible fixed assets According to VAS 03: “Tangible fixed assets means assets in physical forms which are possessed by the enterprises for use in production and business activities in conformity with the recognition criteria of tangible fixed assets.” “To be recognized as tangible fixed assets, assets must meet simultaneously all the following four recognition criteria: - Future economic benefits will surely be obtained; - Their historical cost has been determined in a reliable way; - Their useful life is estimated at more than one year; - They meet all value criteria according to current regulations.” Intangible fixed assets According to VAS 04: “ Intangible fixed assets mean assets which have no physical form but the value of which can be determined and which are held and used by the enterprises in their production, business, service provision or leased to other subjects in conformity with the recognition criteria of intangible fixed assets.” The enterprises often make investment in order to acquire intangible resources such as the right to use land for a definite term, computer software, patent, copyright, etc To be recognized as intangible fixed assets, an intangible asset must simultaneously satisfy: - The definition of an intangible fixed asset; and - Four (4) recognition criteria below: + The certainty to acquire future economic benefits brought about the asset; + The asset’s historical cost must be determined un a reliable way; + The useful life is estimated to last for over one year; + All value criteria prescribed by current regulations are met Financial leasing fixed assets Finance lease is the lease of assets that the lessor has transferred most of the risks and benefits associated with the ownership of the property to the lessee Property ownership can be transferred at the end of the lease term Financial leasing fixed assets are assets that are not yet owned by the hired enterprise But the lessee must have obligations and legal responsibilities for management, maintenance, use and depreciation of financial leasing fixed assets as a fixed asset of the enterprise In addition, fixed assets are classified according to criteria such as: According to economic uses: Fixed assets include types: - Fixed assets used in production and business; - Fixed assets in administration; - Benefit fixed assets; - Fixed assets awaiting processing According to the source of formation: Fixed assets include types: - Fixed assets are formed from capital allocated by the State budget or higher levels; - Fixed assets are formed from supplementary capital (from enterprise funds ); - Fixed assets formed from loan capital; - Fixed assets are formed from joint venture capital or equity capital (capital contribution in kind is fixed assets) According to the nature of ownership: Fixed assets include types: - Self-created assets; - Outsourcing fixed assets  Terms related to fixed assets: Historical cost of fixed assets: Historical cost of tangible fixed assets means all the costs incurred by the enterprises to acquire tangible fixed assets as of the time of putting such assets into the readyfor-use state Historical cost of tangible fixed assets means all costs incurred by the enterprises to acquire intangible fixed assets as of the time of putting these assets into use as expected Fixed assets depreciation Depreciation means the systematic allocation of the depreciable value of fixed assets throughout the useful life of such assets Depreciable value means the historical cost of fixed assets recorded on financial statements, minus (-) the estimated liquidation value of such assets Useful life means the duration in which the tangible fixed assets produce their effect on production and business, calculated by: a/ The duration the enterprise expects to use the tangible fixed assets, or: b/ The volume of products, or similar calculating units which the enterprise expects to obtain from the use of assets Liquidation value means the value estimated to be obtained at the end of the useful life of the assets, after subtracting the estimated liquidation cost Reasonable value means the value of assets, which may be exchanged among knowledgeable parties in the par value exchange Residual value means the historical cost of tangible fixed assets after subtracting the accumulated depreciation thereof Recoverable value means the value estimated to be obtained in future from the use of the assets, including their liquidation value  Characteristics of fixed assets affect financial auditing: Fixed assets in the enterprise include many different types, each with different characteristics and management requirements but they are the same in the large initial investment value and the capital recovery time over a year or a cycle business production of enterprises In the process of production and business, the value of fixed assets gradually decreases after each business cycle but retains its original material form This is a feature that helps auditors to check the existence of fixed assets at the end of the period based on the approved fixed asset physical count minutes Fixed assets are large value items which often account for a significant proportion of total assets on the balance sheet and change according to each industry, each field of operation Especially in manufacturing enterprises, the value of this item accounts for a very high proportion of total assets (60-70%) It is for this reason that the process of auditing fixed asset items often occupies an important position in the auditing process of financial statements However, the auditing of fixed assets usually does not take much time because: - The number of fixed assets is usually not much and each object is often of great value; - The number of increased and decreased transactions in the period is usually not much; - Closing fixed assets at the end of the period is not as complicated as shortterm assets because of the possibility of confusion in the recognition of fixed asset transactions between the years is not high Accumulated depreciation of fixed assets are expressed through the depreciation value of fixed assets since the assets are put into use until the time of closing the books to make reports Depreciation value is an accounting estimate rather than actual cost incurred Because, the depreciation level depends on three factors: historical cost, estimated liquidation value and useful life In particular, cost is an objective factor, and the liquidation value and the useful life are based on the unit's estimate It is for this reason that the audit of depreciation value is a check of an accounting estimate and there is no document to be able to check and calculate accurately Therefore, along with the technical specifications of the seller, the valuation, the business situation of enterprises must check for useful life with fixed asset depreciation framework set by the Ministry of Finance in order to ensure fixed assets are depreciated, they are in accordance with current regulations In addition, because depreciation is a systematic allocation of historical cost after deducting the estimated liquidation value, its rationality depends on the depreciation method used Therefore auditing the depreciation expenses also carries the nature of the inspection on the application of accounting methods Understanding the characteristics of fixed assets will help auditors understand the types of related risks, thereby determining the appropriate amount of audit work to be performed 1.1.2 Accounting for fixed assets 1.1.2.1 Accounting of increase fixed assets a Receiving capital contribution by fixed assets  Procedures needed: - Minutes of recognition of the value of fixed assets contributed as capital - Minutes of handing over fixed assets - Setting up fixed asset card  Accounting: Debit Acc.211 - Historical Cost of FA Credit Acc 411 - Business capital b Purchasing fixed assets (domestic) Enterprises account VAT according to Enterprises account VAT according to the deduction method the direct method Debit Acc.211 – Tangible FA (Purchase Debit Acc 211 - Tangible FA (Purchase price without VAT) price includes VAT) Debit Acc.133 – VAT deducted (1332) Credit Acc 111, 112… Credit Acc 111, 112… Credit Acc 331 – Account Payables Credit Acc 331 – Account Payables Credit Acc 341 – Long-term borrowing Credit Acc 341 – Long-term borrowing c Purchasing fixed assets (Importing) Enterprises account VAT according to Enterprises account VAT according to the deduction method - the direct method Accounting of import prices - Accounting of import prices Debit Acc.211 – Tangible FA Debit Acc.211 – Tangible FA Credit Acc.331 - Account Payables Credit Acc.331 - Account Payables - Accounting of payable import tax - Accounting of payable import tax Debit Acc.211 Debit Acc.211 Credit Acc 3333 - Import tax Credit Acc 3333 - Import tax - Accounting for special - consumption tax (if any) Debit Acc.211 Accounting for special consumption tax (if any) Debit Acc.211 Credit Acc.3332 - Special consumption Credit Acc.3332 - Special consumption tax tax - Accounting for environmental - Accounting for environmental ... financial audit conducted by Vietnam Auditing and Valuation Company Limited – Hanoi Branch .13 1.3 Audit of fixed asset in financial audit process conducted by Vietnam Auditing and Valuation Company. .. AUDIT PROCESS OF FIXED ASSETS BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH .64 3.1 Assessment on the status of auditing fixed assets by Vietnam Auditing and Valuation Company. .. AUDIT IN AUDIT FINANCIAL STATEMENT BY VIETNAM AUDITING AND VALUATION COMPANY LIMITED – HANOI BRANCH 28 2.1 Planning the audit by Vietnam Auditing and Valuation Company Limited – Hanoi Branch