BANKING ACADEMY OF VIETNAM FACULTY OF ACCOUNTING AND AUDITING ---o0o---- GRADUATION THESIS Topic: IMPROVING THE AUDIT OF TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENT AUDITS PERFORMED B
The necessity of the topic
Even though it has been 2 years since the peak of the global epidemic COVID-
Many enterprises are still struggling to recover from past losses, and with the increasing prevalence of automation and other technological trends, coupled with the current unstable political climate, it is crucial for businesses in Vietnam to proactively prepare for potential challenges that may arise.
To enhance competitiveness, operational efficiency, and management quality, auditing has become essential for businesses It serves as a "lighthouse," illuminating hidden risks within business processes and guiding enterprises toward their goals In Vietnam, independent auditing began in May 1991 with the establishment of two auditing firms Over the past 30 years, amidst economic fluctuations, auditing has emerged as a vital service, ensuring the integrity of financial statements Auditors play a crucial role by issuing reports that reflect business activities, enabling users to make informed decisions and contributing to the overall economic stability of Vietnam.
Fixed assets are a crucial indicator of an enterprise's internal strength, providing insights into production efficiency, capacity, scientific development, and economic standing They significantly contribute to the sustainable long-term growth of businesses, as they typically represent a substantial portion of the asset structure Effective management of fixed assets not only ensures sustainable production but also enables business expansion However, to present a favorable business outlook and attract investment, some companies may manipulate fixed asset data, such as inflating asset values or understating depreciation costs Given the high value of transactions involving fixed assets, any fraudulent activity can severely impact the enterprise and influence investor confidence.
After considering my experiences during my internship at Ha Thanh Audit Company Limited, I have chosen to focus my graduation thesis on "Improving the Audit of Fixed Assets in Financial Statement Audits Conducted by Ha Thanh Audit Company Limited."
Literature review
In today's rapidly globalizing world, understanding a company's economic conditions through its financial statements is crucial, especially in the wake of the COVID-19 pandemic and ongoing market fluctuations The 2020s have brought both challenges and potential for economic development, yet many companies are still recovering from the pandemic's impact Additionally, the political and economic climate in countries trading with Vietnam is becoming increasingly dynamic Given these factors, the audit industry plays a vital role in providing reliable support for users seeking to navigate and stabilize the economic landscape Accurate auditing of financial statements allows stakeholders to gain a trustworthy and objective view of a company's economic status, enabling informed financial decisions In particular, fixed assets in manufacturing industries are significantly influenced by economic conditions and can substantially impact financial statements if material misstatements occur.
Over the years, auditing firms have increasingly recognized the significance of fixed assets, leading to ongoing improvements in the audit process for this crucial element This topic is frequently highlighted in both international and domestic research projects conducted by firms and researchers alike.
In 2022, a research named “Audit Of Fixed Assets Of The Enterprise:
Organizational and Methodological Aspect” carried by Chuchkevych, Pylypenko,
Bunda has examined the critical role of fixed assets in companies, highlighting the challenges of their organization and auditing The authors stress the importance of employing scientific methods, including analysis, synthesis, generalization, and induction, in the auditing process However, this methodological approach lacks concrete evidence as it does not target a specific industry or client base Similarly, a study conducted by Klychova et al in 2017 faces the same limitations.
The article emphasizes the importance of developing an audit system for fixed assets to enhance the operational efficiency of enterprises It offers practical suggestions on utilizing fixed asset audits as a performance improvement tool By employing a systematic approach that includes deductions and comparisons based on collected audit evidence, the authors demonstrate the significant impact of fixed assets on business performance Additionally, they provide detailed analytical procedures for fixed asset audits, which have not been previously achieved by Ha Thanh Audit Co Ltd.
The author explored research on upcoming changes to accounting standards, particularly focusing on the theory presented in "Improving Accounting for Tangible Fixed Assets in Vietnamese Enterprises in the Context of International Integration" by Nguyen.
Thi Thu Lien, 2009) and “Evaluate the differences between Vietnamese Accounting
Standards (VAS) and the International Financial Reporting Standards (IFRS) that impact the audit process of auditing fixed assets item in financial statements audit”
(Nguyen Khanh Duy Anh, 2021) has give me a boarden mindset, as well as understanding about the significant changes that would come when Vietnam applied IFRS compulsorily
The increasing prevalence of fixed assets audits has led to a significant number of university theses on the subject For instance, Le Duc Khoa's 2019 thesis, "Audit process of fixed assets items and fixed assets depreciation cost in financial statement audit in Global Auditing And Financial Consultancy Company Limited," explores both theoretical frameworks and the current practices of fixed asset auditing within the company It combines general theories with practical insights gained from an internship, providing an objective evaluation Similarly, Hoang Dinh Thanh's 2021 research, "Improving auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited," follows a comparable structure but focuses on a different auditing firm and delves deeper into the topic, contributing to the body of scientific research in this field.
“Audit of tangible fixed assets in financial statement audit performed by CPA Vietnam
Auditing Company Limited” (Nguyen Ngoc Diep, 2022), “Improving the audit of tangible fixed assets in financial statement audits performed by UHY Auditing and
The auditing process for fixed assets in financial statements, as explored by Nguyen Quynh Anh (2022) and Nguyen Huy Dinh (2023), highlights both local and international firms' efforts to achieve a high standard of accuracy Despite this, significant shortcomings remain in the auditing practices of firms like SCS Global Audit Company Limited The theses propose various solutions to address these deficiencies, aiming to enhance the overall effectiveness of fixed asset auditing.
In summary, while the thesis outlines the strengths, weaknesses, and solutions for each unit, there is a pressing need for additional strategies to enhance these processes The author aims to build upon and advance the findings of previous research.
The objective of the study
The objective of the thesis includes 3 parts, corresponding to the 3 major headings in the thesis:
First, the author will systemize the basic theory in regarding to the tangible fixed assets audit process in financial statement audits performed by the independent auditors
The article outlines the general audit process for tangible fixed assets and provides a practical analysis of how Ha Thanh Audit Company Limited conducts fixed asset audits within financial statement evaluations It aims to assess the company's strengths, limitations, and the underlying causes of these factors.
Based on the identified limitations and their underlying causes, the author proposes several recommendations to enhance the audit process of tangible fixed assets in the financial statement audits conducted by Ha Thanh Audit Company Limited.
Research object and scope
This thesis examines the theoretical foundations and practical applications of auditing tangible fixed assets within financial statement audits conducted by Ha Thanh Audit Company Limited.
This study focuses on the tangible fixed asset audit process conducted by Ha Thanh Audit Company Limited, specifically examining the auditing practices for fixed assets at ABC Company Limited during the fiscal year 2023.
Research questions
The thesis will focus on answering three main questions:
- What are the general theoretical basis related to the tangible fixed assets item, and how an independent financial statement audit relating to tangible fixed assets works?
Ha Thanh Audit Company Limited conducts tangible fixed assets audits through a systematic approach that includes thorough assessments of asset valuation, verification of ownership, and compliance with relevant regulations In the case of ABC Company Limited, the audit process involves detailed examinations of asset records and physical inspections to ensure accuracy and reliability The achievements of Ha Thanh Audit Company include enhanced asset management and improved financial reporting for ABC Company, while limitations may arise from potential discrepancies in asset documentation and challenges in tracking asset depreciation accurately Overall, the effectiveness of the audit is reflected in the strengthened financial integrity and operational efficiency of the companies involved.
- In order to improve the auditing of tangible fixed assets of Ha Thanh Audit Company Limited, what recommendations should be made for both the company and the related factors?
Research methodologies
Theoretical research methods involve analyzing and synthesizing existing theories while comparing and generalizing issues related to fixed asset audits This includes collecting relevant regulations and examining both primary and secondary data on fixed asset auditing practices at Ha Thanh Audit Company Limited.
- Practical research methods: observations and document analysis method using the references from the firm’s archives and pratical experince in conducting the audit of fixed assets at ABC Company Limited.
Overall structure of the graduation thesis
In addition to the introduction, conclusion, list of references, the structure of the thesis consists 3 main chapters:
Chapter I Theoretical basis of the audit of tangible fixed assets in the financial statement audit performed by independent auditors
Chapter II The practice of the audit of tangible fixed assets in the financial statement audit performed by Ha Thanh Audit Company Limited
Chapter III Improving audit of tangible fixed assets in financial statement audits performed by Ha Thanh Audit Company Limited.
THEORETICAL BASIS OF THE AUDIT OF TANGIBLE FIXED
Overview of the audit of tangible fixed asset in financial statement audits 17 1 The necessity of auditing tangible fixed assets
1.2.1 The necessity of auditing tangible fixed assets
Auditing fixed assets is crucial for businesses to maintain accurate financial records and ensure transparency These assets, including property, equipment, and machinery, significantly impact a company's operations and long-term success Regular audits verify the existence, condition, and value of fixed assets, reducing the risks of errors and fraud Additionally, compliance with regulatory requirements and financial reporting standards through fixed asset audits fosters trust among stakeholders and enhances the organization's reputation By implementing thorough audits, businesses can protect their financial integrity, improve decision-making, and demonstrate a commitment to sound corporate governance practices.
1.2.2 The objectives of auditing tangible fixed asset
According to Vietnamese Auditing Standard No 200, the primary objective of auditing fixed assets is to gather sufficient evidence to verify the reliability of related financial information This process not only confirms the accuracy of financial data but also provides essential documentation for auditing other operations To meet these overarching goals, auditors must focus on specific objectives, ensuring that the evidence collected demonstrates the integrity and reasonableness of databases related to economic activities and fixed asset account balances, accurately reflecting the true economic nature and aligning with the enterprise's business characteristics.
- In regard to the transactions:
Transactions involving changes to the amount of fixed assets recorded in financial statements reflect the total number of fixed asset transactions during a specific period These operations include the transfer of fixed assets, which is documented in the books to indicate the movement of assets from one location to another.
+ Completeness: All transactions of purchasing, transferring and liquidating and selling fixed assets that occurred during the period have been reflected in the books and financial statements
Accurate recording of fixed asset transactions, including increases, decreases, and transfers, is essential Each transaction must reflect the correct value and adhere to proper accounting practices, ensuring that cumulative amounts and transfers are accurately documented.
+ Timeliness: All transactions related to fixed assets are recorded on time, on an accrual basis
+ Classification: Fixed assets are recorded and tracked on the correct accounting account
- In regard to the balances:
+ Existence: Fixed assets reflected on the accounting balance sheet actually exist
+ Completeness: All existing fixed assets at the date of establishment of the
Board of Directors have been fully presented on the Board of Directors
+ Rights and obligations: Enterprises have ownership and control rights related to fixed assets
Fixed assets are recorded at appropriate values according to current accounting standards, ensuring that any changes in valuation and allocation are accurately documented and thoroughly explained.
1.2.3 The basis for auditing tangible fixed assets
Assets that do not actually exist in the business or have been sold to another party
Assets purchased or liquidated during the year have been fully recorded in the enterprise's books
Assets have been recorded at their correct value equal to acquisition cost minus accumulated depreciation
Change in assets are also recorded accurately
The enterprise has rights to the assets purchased and the assets are recorded at the end of the fiscal year
Classification and understandability Assets were recorded in the correct accounts, costs that did not qualify for capitalization were accounted for as expenses
Information related to original price, new purchase, liquidation, depreciation period and depreciated value of assets have been fully disclosed in accordance with current standards.
The process of auditing tangible fixed asets in financial statement audits 20 1 Audit planning
The auditing of fixed asset items in financial statements involves three key stages: the audit planning stage, the audit fieldwork stage, and the audit review and finalization stage.
- To collect sufficient and appropriate audit evidence to minimum the risk if taken the contract
- Ensure the cost of the audit is reasonable
- Avoid potential misunderstandings between the goal of an audit with the goal the clients want to achieve
1.3.1.2 Steps in audit planning stage
In this stage, the primary activities include reviewing client acceptance, conducting risk assessments, and evaluating materiality, along with assessing objectives related to the financial statements These steps enable the team leader to develop an effective audit plan.
- Step 1: Make a decision to accept the customer
To effectively evaluate the industry, it is crucial to assess whether human resources, finance, and capacity align with the risk identification of the audited unit and the timely release of reports Key criteria include the evaluation of contract risks specific to each audit engagement, ensuring auditors accurately assess these risks to implement suitable solutions Additionally, it is essential to verify the professional capacity of the audit team, focusing on their industry knowledge, experience, and the resources required for successful completion Lastly, adherence to professional standards and ethics is paramount; auditors must maintain independence throughout the process to uphold their responsibility to comply with these standards.
When evaluating an audited unit, it is crucial to determine whether to accept a new client or continue with an existing one This decision hinges on assessing the potential impact on the auditing firm's reputation and image.
Customers should conduct an audit to assess their commitment to improving their organizational structure and to reevaluate their accounting practices and internal controls Additionally, audits are essential for clients seeking to be listed publicly or attract investment capital Certain clients, such as publicly traded companies, commercial banks, and foreign direct investments (FDIs), are mandated to undergo audits due to the significant impact their financial information has on the economy.
Auditors must conduct a comprehensive investigation of clients, focusing on three primary concerns that could influence the audit opinion Firstly, they need to assess material issues related to fixed assets, considering significant problems identified in the current or previous year's audits and their implications for maintaining strong customer relationships.
2) Consider the integrity of the client's management: Cooperation in handling related issues, attitude and perspective in identifying and reporting on complex accounting issues that involve fixed assets, attitudes and perspectives on risk management and maintaining internal control of the enterprise; 3) Review the completeness of accounting records: papers, vouchers, books,
To initiate an audit, senior leaders of the audit unit must create a comprehensive audit plan, which includes establishing clear terms for the audit process, setting deadlines for draft report submissions, and scheduling communication with the client unit Following this, leaders will formulate a preliminary audit strategy by estimating required human resources, assessing team qualifications, and determining if external experts are needed.
Auditors assess the client's business activities by examining state regulatory policies, the establishment timeline, various business lines, and the organizational structure They also evaluate the accounting system and internal control mechanisms in place to ensure compliance and operational efficiency.
- Understand clearly the production and business process
- Describe the document circulation process of basic activities
- Understand corporate governance and evaluate management policies
- Customer's business goals and development strategies
- Measure and evaluate customer performance
In conducting a fixed asset audit, auditors assess both the general business environment and the specific internal characteristics of the enterprise This evaluation helps identify the types of fixed assets owned by the company, along with their unique characteristics and properties By understanding these elements, auditors can pinpoint associated risks and detect any abnormalities in the processes of purchasing, liquidating, selling, and monitoring fixed assets, allowing for a more informed and strategic auditing approach.
Risk assessment & materiality and objective assesment in regard to the financial statements are often go together during audit planning
- Step 3: Assess risks arise from operating
Understanding the characteristics of customers' business activities is essential for assessing potential risks, including those associated with related parties For instance, utilizing loan capital for fixed asset investments can be significantly impacted by fluctuating interest rates, while transactions involving the buying and selling of fixed assets also present unique risks.
- Evaluate the effectiveness of customer management, risk control, and information disclosure processes: fixed asset management process
- Business strategy and external environmental factors: expansion or contraction of production affects fixed asset management; Factors such as epidemics, natural disasters, etc
The auditor conducts a preliminary analysis of the financial statements to identify unfamiliar characteristics of the unit and evaluate the risk of material errors This assessment helps in defining the scope and appropriate audit procedures for subsequent stages.
Auditors conduct a preliminary analysis of financial statements by assessing operating results to identify potential risks of material errors By understanding measurement criteria and evaluating customer performance, they can also detect unusual fluctuations that may indicate errors in the financial statements.
- Step 5: Research internal control and assess control risk
During the audit process, auditors need to collect information:
When acquiring fixed assets, thorough planning and accurate estimation are essential, ensuring that any discrepancies between the actual purchase price and the estimated cost are properly authorized In the event of liquidating fixed assets, a dedicated liquidation council is formed, minutes are recorded, and the liquidation decision receives formal approval from the council.
The depreciation method employed must align with current accounting standards and be consistently applied across accounting periods If there is a change in the depreciation method, it is essential to evaluate whether this change reflects the benefits that fixed assets provide to the business.
THE PRACTICE OF AUDITING TANGIBLE FIXED ASSETS
General overview of Ha Thanh Audit Company Limited
Ha Thanh Company Limited is a reputable professional services firm based in Hanoi, Vietnam While it may not be as large as some competitors, it is distinguished by its unwavering commitment to excellence and integrity in financial services Founded with the goal of delivering high-quality audit, assurance, and related services, Ha Thanh Company is dedicated to meeting the needs of its clients with professionalism and expertise.
Ha Thanh Audit has steadily built a strong presence in the Vietnamese market since its inception
Ha Thanh Audit Company Limited, guided by a team of certified auditors and seasoned professionals, provides a wide array of services designed to cater to its target clientele The firm specializes in financial statement audits, compliance reviews, risk management, and internal control assessments, delivering precise, trustworthy, and prompt insights that empower clients to make informed business decisions.
2.1.1 The process of formation and development
General information about Ha Thanh Auditing Company Limited:
- Full name: Công ty TNHH Kiểm toán Hà Thành - Ha Thanh Auditing Company Limited
- Abbreviated name: Ha Thanh Audit Co., Ltd
- Type of business: Non-state LLC with 2 or more members
Ha Thanh Auditing Company Limited is officially registered under Business Registration Certificate No 010661****, issued by the Department of Planning and Investment of Hanoi City, with its 6th amendment dated June 17, 2020 The company operates under the Certificate of Qualification for Auditing Services Business No 223/KDKT, granted by the Ministry of Finance on December 31, 2020.
Ha Thanh aims to establish itself as a premier auditing firm in Vietnam, delivering specialized services that add significant value to clients The company emphasizes professional methodologies, a scientific approach to work, and deep expertise, leveraging its comprehensive understanding of various business sectors within Vietnam's economy and legal framework.
Auditing, appraisal, legal consulting, tax consulting, project management consulting, supervision consulting, incident cause assessment are the main fields of
Ha Thanh Audit Company Limited
Ha Thanh specializes in two primary areas of auditing: financial statement auditing and operational auditing While operational auditing is the company's forte, Ha Thanh prioritizes independence, objectivity, and high service quality, which has earned it customer trust and fostered growth in its financial statement auditing services.
Diagram 2.1 Management apparatus in Ha Thanh Audit Company Limited
(Source: Ha Thanh Audit Co Ltd internal documents)
Every professional department has distinct functions and responsibilities; however, collaboration and support between departments are essential for enhancing efficiency and ensuring high-quality audits.
2.1.4 General audit process that was performed in Ha Thanh Audit Company
The auditing procedures for the financial statements of Ha Thanh Company Limited are structured according to the sample audit program provided by VACPA The steps involved in this auditing process are clearly illustrated in the accompanying diagram.
Diagram 2.2 General audit process in Ha Thanh Audit Company Limited
(Source: Ha Thanh Audit Co Ltd internal documents)
Utilizing the sample audit program from VACPA enables the audit firm to systematically achieve its objectives through a comprehensive financial statement audit that encompasses both management and control elements This process ensures that the financial statements adhere to current accounting standards, comply with applicable laws, and accurately represent material aspects with honesty and rationality Consequently, implementing this auditing program fosters trust among users of the financial statements.
2.1.5 Audit quality control of Ha Thanh Audit Company Limited
Diagram 2.3 Audit quality control of Ha Thanh Audit Company Limited
(Source: Internal training document of Ha Thanh Company Limited)
The audit quality control of Ha Thanh Audit Company Limited including 4 main steps:
Step 1: Team level control – In control: Team leader
An auditing team is composed of a team leader and members, with the leader appointed directly by the department head Clearly outlined in the audit plan, this individual is responsible for organizing the team to conduct the audit at the client's company.
During the audit fieldwork, the leader must review the working papers daily and provide timely feedback, such as suggesting additional testing procedures or expanding the sample size Before concluding the fieldwork, the leader should conduct a final review of each audited item’s working paper, sign off on them, and prepare a summary report highlighting key issues This report serves as a basis for a meeting to unify data and reconcile opinions with clients.
Step 2: Department level control – In control: Head of the Audit Dept
Step 4: Before issuing the audit reports
The Dept Head is the one who control and sign the audit reports For some jobs, this person may also plays the team leader role
The audit manager reviews the quality of audit performance to deliver an objective assessment of audit judgments and conclusions, enabling them to form an opinion for the audit report on or before its issuance date.
In significant audit engagements, particularly those involving high materiality violations, auditors must convene meetings with clients to address and discuss the identified issues It is essential to summarize and document the details of these meetings in the audit files for accurate record-keeping and compliance.
The manager conducts the revision on audit records, signs on the auditors’ working papers, then comment and suggest the solutions on working paper B130
Step 3: Firm level control – In control: Member of the Board of Director (BoD), asssociated professional
Members of the Board of Directors (BoD) are recognized as Certified Public Accountants (CPAs) tasked with reviewing detailed audit documents and ensuring compliance with the established audit program They assess service quality based on a specified audit quality control scale Throughout the year, the affiliated auditing organization sends highly qualified professionals to randomly select and re-examine a portion of the audited financial statements, effectively conducting an audit of the audited results to ensure the overall quality of the company's financial reporting.
Board members collaborate closely with team leaders, auditors, and clients to address issues identified by upper management They analyze these concerns, offer their insights, and propose solutions to ensure the accuracy of audit documents and opinions related to B120.
The revised audit files will be returned to the audit manager and team leaders for final adjustments and to include any necessary documents They will also prepare the content that requires clarification with the Board of Directors members.
Step 4: Before issuing the audit reports
The draft audit reports, which has been fixed after the 3 mentioned steps, will be present to the member of BoD to review, approve and seal
Audit documents must be completed and graded by the board of directors according to the prescribed scale according to form B110.
The practice of the audit of tangible fixed assets in financial statement audits
2.2.1 The audit process of tangible fixed assets in financial statement audits performed by Ha Thanh Audit Company Limited
The auditing standard No.300 on planning to audit financial statements declares that the target of the financial statement audit in overall, and audit plan in particular is
The primary objective of auditors and auditing firms during the audit planning phase is to ensure an effective audit process To accomplish this goal, it is essential to develop a comprehensive overall audit strategy and a detailed audit plan At Ha Thanh Audit Co Ltd, this critical section is executed with careful consideration and structured methodology.
Review client acceptance and risk assessment
- Make a decision to accept the customer & Researching clients’ field:
Ha Thanh Audit Company employs a comprehensive set of criteria to evaluate contract acceptance for both new and existing clients The primary focus is on gathering essential information about the client company, including the reasons for seeking audit services, their business situation, organizational structure, accounting practices, internal control systems, and any existing relationships with other audit firms.
The information considered during this phase varies based on the client company and the auditor's judgment It primarily pertains to the client's legal obligations and the industry regulations they adhere to Key elements include compliance with rules and regulations, examination of legal documents related to capital contributions, review of previous audit reports and financial data, analysis of client publications and websites, conducting brief interviews with personnel outside the finance department, and observing operational practices.
By accepting the offer, audit firms can minimize hidden risks while enabling auditors to swiftly assess business conditions, leading to the development of an effective overall audit strategy.
Diagram 2.4 Risk assessment of Ha Thanh Audit Company Limited
(Source: Internal training document of Ha Thanh Company Limited)
Audit risk for each job is evaluated by analyzing three key types of risks: inherent risk (IR), control risk (CR), and detection risk (DR) The relationship between IR and CR significantly influences these risks, as illustrated by a specific formula that highlights their correlation.
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Ha Thanh Audit Limited Company evaluates risk components at three levels: low, moderate, and high The auditor assesses risks associated with fixed asset indicators and explanations by examining the production and business cycle, as well as internal control and accounting policies.
Inherent risk refers to natural risks that arise from the possibility of inaccurate financial statements due to errors or omissions related to the business's operating environment, rather than internal control deficiencies To accurately assess this risk, auditors must gather industry-specific information Ha Thanh Audit Company Limited evaluates these risks based on five factors identified by the Institute of Chartered Accountants in England and Wales (ICAEW): subjectivity, complexity, uncertainty, change, and susceptibility For instance, they consider whether transactions are complex and whether the client operates in an industry with a high failure rate due to rapid technological advancements.
Control risk refers to the potential for errors or fraud in assertions that may go undetected due to inadequate internal controls within a company To accurately assess this risk, auditors must conduct interviews with responsible personnel and observe the operations of those directly involved Key inquiries often focus on the application of accounting policies, control procedures, and the systematic management of fixed assets The detection assurance level utilized by Ha Thanh Audit Company Limited is significantly influenced by these factors, with a score of 0.5 indicating reliable internal controls and a maximum of 2.0 representing unreliable controls.
Based on solely the IR and CR, the leaders will then create an early audit strategy, using the formula:
Risk of Material Misstatement (RoMM) = Inherent Risk (IR) x Control Risk (CR) Table 2.1 Audit Strategy based on the overall risk assessment
(Source: Internal training document of Ha Thanh Company Limited)
Detection risk is the only risk type that auditors can control directly To ensure the reliability of audit reports, team leaders must comprehend the nature of the items being audited and apply their professional judgment, combined with objective factors, to establish an appropriate level of detection risk.
After years in operation, the audit firm has develop a system of criteria to determine the materiality levels applied to audits
Table 2.2 Ha Thanh Audit Co Ltd Materiality Assessment Table
(Source: Internal training document of Ha Thanh Company Limited)
At Ha Thanh Audit Company, the process of determining final materiality involves several key steps: first, identifying criteria to establish the estimated materiality benchmark; second, applying the appropriate rate to calculate materiality; third, deciding on the performance materiality (PM) rate; fourth, setting the rate for the estimated trivial threshold (TT); and finally, comparing these findings with the previous year's materiality to establish the final materiality.
- Objective assesment in regard to the financial statements
During the planning phase, team leaders perform analytical procedures to enhance the audit plan, ensuring that all members gain a comprehensive understanding of key issues This process also aids in identifying the right individuals for task assignments At this stage, auditors at Ha Thanh frequently engage in horizontal or vertical analysis to support their efforts.
Horizontal analysis allows for the comparison of fixed asset transactions across consecutive fiscal years, making it easier to identify unusual fluctuations, such as sudden increases or decreases in asset values and abnormal depreciation costs This type of analysis serves as a valuable tool for those responsible for managing fixed assets, enabling them to enhance efficiency in their duties.
Vertical analysis involves comparing expected ratios with actual ratios to assess financial performance By combining this technique with horizontal analysis, auditors can evaluate the percentage change in fixed assets and determine if the ratios align with industry standards For instance, if a client operates in an industry characterized by a high fixed assets-to-total assets ratio, but the actual data shows a decline, auditors must investigate the underlying reasons for this discrepancy.
Team leaders will create an audit program tailored to their team's specific nature and industry, addressing common errors associated with fixed assets Key issues include misestimating an asset's useful life, incorrectly recording repair costs as original costs, continuing depreciation on fully depreciated assets, and applying inappropriate depreciation calculation methods.
Before the actual date of the fieldtrip, the team leader will ask the client to provide the final version of the necessary documents, including:
+ Balance sheet, trial balance, transaction list
+ General ledger accounts that relates to fixed assets (211 – tangible fixed assets, 212 – fixed assets of finance leasing, 213 – intangible fixed assets, 214 – depreciation of fixed assets, 241 – capital construction in progress…)
+ List of fixed assets classified into groups
+ List of construction in progress for each asset (if any)
During the audit fieldwork, the auditors sometimes request additional documents to substantiate their conclusions, for example:
+ Regulations on procurement, management and used of fixed assets
+ Detailed accounting books for each type of fixed assets (if any)
+ Documents related to unusual transactions (increases and decrease) in fixed assets and capital construction in progress during the period
- The procedures used during an audit fieldwork:
Audit strategies, as shown in Table 2.1, highlight that auditors do not always perform tests of controls during fieldwork, despite their significance When team leaders determine that a client's internal controls are unreliable, it is often more efficient to proceed directly to substantive tests.
Evaluation of the tangible fixed asset audit process in financial statement
statement audits conducted by Ha Thanh Audit Company Limited
Ha Thanh Audit Company Limited has developed a comprehensive financial statement audit process, specifically tailored for tangible fixed assets, in accordance with the sample audit procedures provided by VACPA This approach ensures compliance with Vietnamese audit standards, reinforcing the company's commitment to maintaining high-quality auditing practices.
In this phase, the auditor adheres to the established auditing process, which includes gathering information on the client's fixed assets, understanding the internal control mechanisms related to those assets, evaluating materiality and associated risks, and developing an appropriate audit plan.
The team leader meticulously gathered information on the client's accounting system and fixed asset policies, including the accounting period, applicable systems, recording methods, and internal controls This data collection was facilitated by a concise questionnaire designed to enhance the credibility of the audit opinion.
Upon contract acceptance, Ha Thanh will form an audit team of 5-6 members, tailored to the customer's size, risk level, and complexity To ensure the thorough collection of reliable evidence, audit quality control procedures will be conducted both during and after the audit, involving all team members in a cross-sectional manner.
Upon forming the audit team, the team leader will utilize handover documents to guide the assessment of materiality in financial statement audits, estimating the current year's materiality based on the collected information.
Ha Thanh's audit program, modeled after VACPA's sample program, enables the leadership to swiftly understand essential procedures and develop tailored audit programs for each client.
The auditor conducts the audit of fixed assets based on a comprehensive audit program Ha Thanh utilizes a risk-based auditing approach alongside an item-based auditing approach, effectively addressing their specific circumstances.
Audit procedures are systematically conducted to ensure efficiency and effectiveness, utilizing control testing, analytical procedures, and detailed testing to gather comprehensive and valuable evidence while minimizing time and costs Control tests assess the integrity of internal controls, guiding auditors in determining the necessary level of detailed inspections, while analytical procedures help identify any unusual fluctuations Throughout the auditing process, particular attention is given to the organization of working papers and the documentation of collected audit evidence, including clear references to related audit items Working papers meticulously outline who conducted the audit, who reviewed it, the timing of the audit, and the order of the procedures performed.
2.3.1.3 Audit review and finalization of fixed assets
Before forming an opinion on fixed assets, auditors must review relevant audit evidence and consider subsequent events that impact the financial statements The auditor's synthesis of the audit results is crucial, as it provides a clear and detailed basis for the opinions stated in the audit report.
The quality survey review process is rigorously enforced, beginning with the audit team leader synthesizing adjusting entries for fixed assets after receiving all members' working papers Any post-report events that may impact the integrity and reasonableness of the financial statements are carefully considered and discussed with the audit manager.
Ha Thanh excels in operational audits; however, its financial department may face staffing shortages as financial statement auditing is a relatively new endeavor for the company Despite the high experience and regular training of the team, this inexperience could lead to disadvantages Additionally, the use of Excel for sample working papers, which are shared individually, increases the risk of errors and omissions if auditors do not precheck the documents before use.
For returning clients, audit procedures often rely on discussions between the current and previous auditors, referencing past working papers This approach risks overlooking crucial information that could significantly impact the audit Limited time for each audit and reliance on outdated customer policies hinder a comprehensive understanding of actual changes, leaving hidden risks unaddressed Additionally, the use of a standardized questionnaire for assessing clients' internal controls can lead to inefficiencies and inaccuracies, as it may not accurately reflect the unique situations of all clients.
Effective analytical procedures during the planning stage are crucial for identifying potential risks Currently, leaders emphasize horizontal analysis by comparing this year's data to last year's, rather than analyzing industry-wide trends Additionally, a lack of careful consideration of economic indicators may hinder auditors' ability to detect material errors, ultimately diminishing the effectiveness of their inspection focus.
Typically, auditors assess the overall materiality of financial statements and allocate importance and risk to each item However, Ha Thanh only offers materiality indicators for the entire financial statement without specifying levels for individual items These indicators rely solely on experience and professional judgment, making it challenging to accurately estimate figures, which can significantly influence the audit's outcome.
Ha Thanh Audit Co, Ltd apply the sample audit process issued by VACPA strongly, this may be an advantage, but also a drawbacks of the audit program in the company
The company frequently utilizes a standardized audit program across multiple clients, making only minor adjustments for individual needs This approach has notable limitations, as auditors often depend on previous clients' programs or reuse last year's templates without necessary modifications While this method may be suitable for new clients, it can lead to inefficiencies for longstanding clients if auditors do not review past performance and adapt accordingly Consequently, relying on a sample audit program diminishes the flexibility essential for an effective audit process.
IMPROVING AUDIT OF TANGIBLE FIXED ASSETS IN
Development orientation of Ha Thanh Audit Company Limited and the
3.1.1 Development orientation of Ha Thanh Audit Company Limited
The company prioritizes independence, objectivity, and client data confidentiality, emphasizing reputation and service quality Its mission extends beyond verifying the accuracy of financial reports and project settlements; it also focuses on ensuring transparency in valuation certificates Additionally, the company provides management consulting and enhances internal control and accounting systems to maximize benefits for enterprises.
Ha Thanh Auditing Company Limited aims to establish itself as a leading auditing firm known for its high reputation and reliability Leveraging its expertise and experience, the company is committed to delivering quality services at competitive prices, providing a solid foundation for clients to select it as their preferred auditing, appraisal, and tax advisory partner.
In order to do that, not only Ha Thanh needs to improve their audit quality, but also consider expanding the company, while maintain their strengths and overcome the weaknesses
3.1.2 The necessity for improving the audit process of tangible fixed assets in financial statements audits
Improving the quality of fixed asset audits is crucial due to various factors, including social demands, competition in the audit market, changes in accounting standards, and inherent challenges of the profession Most importantly, fixed assets signify a business's current and future potential Auditors must assess whether a business's size aligns with its fixed assets, as these assets also serve as key indicators for attracting capital investment This can lead to companies manipulating reports, and errors related to fixed assets can result in significant misstatements in financial statements Acknowledging these challenges, auditing firms have consistently enhanced their fixed asset audit quality to elevate their overall financial statement audit services.
Recommendations to improve the audit of tangible fixed assets in financial
financial statement audits performed by Ha Thanh Audit Company Limited
Ha Thanh Audit Company Limited faces a significant challenge in managing its human resources To address this issue, the company should prioritize enhancing its workforce through targeted strategies and initiatives.
To enhance its auditing capabilities, Ha Thanh must implement a robust talent acquisition plan amid a competitive landscape dominated by Big4 firms and renowned non-Big companies Despite the abundance of auditing graduates in the job market, attracting promising and skilled candidates is crucial The company should prioritize competitive salary and benefits packages while broadening its recruitment strategies to effectively source top talent.
To enhance the quality of its workforce, the company must prioritize specialized training programs that equip employees with the necessary skills to adapt to the evolving audit industry, particularly in light of impending changes to accounting methods.
Addressing the challenges associated with auditing support programs, particularly in relation to the firm's financial status, remains complex However, the firm can enhance its archival processes and gradually develop an internal support program to improve the effectiveness of future audits.
On the other hand, the company also needs to improve the quality of existing audits For fixed assets, the writer has some suggestions as follows:
To effectively audit fixed asset items in line with the client's actual situation, auditors must focus on key aspects during the planning phase of the audit.
To address the issue of auditors relying solely on customer-provided documents, it is essential for them to diversify their information sources by exploring industry benchmarks and alternative channels aligned with Ha Thanh's capabilities This approach enables auditors to better understand client performance in relation to the broader market Additionally, by developing a comprehensive set of industry profiles based on anticipated contracts and client trends, auditors can efficiently compare and contrast the audited enterprise with others, enhancing the overall audit process.
To enhance the audit process for returning clients, auditors must rely heavily on the previous year's audit records, which often lack detailed information on specific business operations To address this issue, companies should develop a comprehensive record system for traditional customers, enabling auditors to easily track operational changes and assess potential risks more accurately This record should encompass historical and ongoing information over the financial years, including establishment decisions, important meeting minutes, business registration certificates, company charters, tax documents, and human resources records.
For researching internal control, the auditors can try visualizing the procedures by using flowchart, narrative notes and checklists
Auditors will not only compare this year's data with last year's but also employ additional analytical procedures These include evaluating actual performance against planned figures, benchmarking the client's data against industry standards, and analyzing key financial ratios, such as fixed asset turnover, to gain deeper insights into the client's financial health.
At Ha Thanh Audit Co Ltd, the overall materiality for financial statements is established, but individual item materiality is not specified This lack of detail can lead to inaccuracies, particularly as inexperienced personnel manage fixed assets, potentially resulting in flawed assessments To enhance the audit process, it is crucial for Ha Thanh to develop a standardized model for determining materiality levels for each item This approach would minimize subjectivity and emotional bias among auditors, improve accuracy, and reduce audit risks, ultimately guiding auditors in collecting comprehensive and relevant audit evidence.
Referring to other audit’s firm’s procedure in the previous research, the Ha Thanh could carry out:
Table 3.1 Reference of materiality correction factor
IR CR Materiality correction factor
The audit team must prioritize the revision and enhancement of audit procedures for fixed asset items tailored to each individual customer Additionally, it is essential for the audit team leader or manager to reassess the audit program post-audit, ensuring necessary adjustments and completions for the fixed asset items are made.
For an effective fixed asset count, it is advisable for the auditing company to engage an expert to evaluate the value and quality of the assets However, considering the economic constraints in Ha Thanh, it may be challenging to hire experts for every audit Therefore, the company should prioritize a customer assessment to determine the necessity of expert involvement.
Auditors must document their procedures for evaluating the internal control system in working papers to facilitate future reviews To enhance this process, companies should establish clear and easily applicable regulations The necessity of testing controls depends on the results of the risk assessment, as discussed in other sections.
The current analytical procedures lack depth and effectiveness, primarily focusing on basic year-over-year comparisons rather than a comprehensive evaluation of the company's operations during the audit To enhance their analysis, the company should consider implementing additional procedures, such as vertical analysis of fixed assets relative to total assets, assessing the return on capital for fixed assets, and evaluating the ratio of fixed assets to equity Furthermore, comparing the fixed asset investment plan with actual increases, analyzing accrued repair costs against actual expenditures, and examining the relationship between fixed asset depreciation and operational performance can provide valuable insights.
In 2023, ABC Co Ltd has significantly increased its fixed assets, suggesting a strategic enhancement in its asset utilization for the fiscal year This growth provides valuable insights into the company's operational efficiency and investment potential.
The ABC Co Ltd’s FAT is 2.86, which means every unit of money that ABC owned, generated 2,86 unit of money of its net sales, which could consider a positive outcome
+ The Fixed Asset-To-Equity Capital Ratio:
Fixed Asset − To − Equity Capital = 𝑇𝑜𝑡𝑎𝑙 𝐹𝐴𝑠
The company exhibits a fixed asset-to-equity ratio of 0.78, indicating a lack of valuable fixed assets that could be liquidated for cash when necessary.
Factors that affect the improvements of the audit process of tangible fixed
fixed assets item in auditing financial statements at Ha Thanh Audit
3.3.1 Recommendations to the government and competent agencies
- Establish a complete legal environment for audit activities
+ The government should complete the system of accounting and auditing standards so that legal documents become stricter and easier to understand
+ Develop a legal framework that clearly stipulates the audit firm's responsibilities, in which clearly stipulate compensation responsibilities, and conditions for determining compensation
+ Develop measures to support the auditing businesses in law enforcement
+ A mechanism should be issued for disciplinary decisions against auditors or auditing companies when violations of law or professional ethics occur
Establishing a robust quality control mechanism for auditing firms is crucial, as it enhances public confidence in the outcomes delivered by independent auditors and elevates the overall audit quality in Vietnam.
3.3.2 Recommendations to the accounting and auditing associations
Regularly organizing training classes enhances professional skills and ensures effective collaboration with the Ministry of Finance and other authorities This initiative focuses on designing specialized programs to train audit experts, preparing them for certification examinations.
To enhance the quality of auditing practices in Vietnam, it is essential to periodically update knowledge, incorporating both domestic standards and international integration A pressing concern among audit professionals is the application of International Financial Reporting Standards (IFRS) in Vietnam Despite the postponement of the mandatory implementation timeline, it remains crucial for the association to facilitate exchange sessions that share experiences and address inquiries related to IFRS adoption.
To enhance workforce effectiveness, the company must establish a comprehensive recruitment strategy alongside a structured training program It is essential to develop a robust human resources management plan that focuses on employee benefits and professional growth.
- Audit support software should be applied, and efforts should also be made to develop information technology
- The company should always contribute to building and perfecting the system of accounting standards, auditing standards, accounting regimes and legal documents related to the profession
To effectively evaluate client operations, auditors must enhance their understanding of various industries, fostering a multi-dimensional perspective and analytical skills This knowledge allows them to connect economic contexts with client activities, ultimately improving their audit effectiveness.
- The auditor also need to improve soft skills that can help in the audit process such as language, communication skills,
Auditors are required to adhere strictly to professional ethics regulations, demonstrating a strong sense of responsibility and maintaining professional skepticism This commitment is essential to ensure the quality of information provided to users, thereby safeguarding the reputation of both individual auditors and their firms.
To ensure an effective audit, clients must timely provide necessary documents to auditors, minimizing delays and enhancing audit efficiency Additionally, clients should actively collaborate and transparently communicate any issues related to the audit, which is crucial for achieving optimal audit outcomes.
- Organize the accounting and build a scientific and reasonable accounting system towards converting financial statements according to IFRS to improve transparency for financial statements
Chapter 3 builds on the audit situation and limitations identified in Chapter 2, offering a variety of remedies aimed at enhancing the financial statement auditing process, particularly in the area of fixed assets These solutions are specifically designed to improve the auditing practices of Ha Thanh Audit Co Ltd and align with the company's future strategic goals.
In today's rapidly evolving economic landscape, independent auditing activities are crucial for maintaining transparency and accountability Despite facing numerous challenges, Vietnam's auditing industry is steadily advancing to align with global standards in independent auditing.
My internship experience at Ha Thanh Company Limited, combined with insights from my studies at Banking Academy, has deepened my understanding of the critical role of auditing financial statements, particularly fixed assets My graduation thesis focused on the auditing process for fixed assets at Ha Thanh Audit Co Ltd, highlighting a practical audit conducted at ABC Co Ltd in accordance with VAS auditing standards Based on the data collected, I believe that while the auditing process at Ha Thanh is generally acceptable, there are significant opportunities for improvement, as discussed in my thesis.
Despite my best efforts, my graduation thesis may contain errors due to my limited knowledge I welcome constructive feedback and guidance from both my teachers and colleagues to help me improve and address any shortcomings.
I would like to extend my heartfelt gratitude to Ms Le Thi Thu Ha and the team at Ha Thanh Audit Company Limited for their invaluable support in helping me successfully complete my graduation thesis.
[1] Ministry of Finance (2014), Circular No.200/2014/TT-BTC on Guidelines for accounting policies for enterprises, issued on December 12th 2014
[2] Ministry of Finance (2001), Vietnamese Accounting Standard 03 Tangible fixed assets, issued and published according to Decision No.149/2001/QD- BTC
[3] Ministry of Finance (2001), Vietnamese Accounting Standard 04 Intangible fixed assets, issued and published according to Decision No.149/2001/QD- BTC
On April 25, 2013, the Ministry of Finance issued Circular No 45/2013/TT-BTC, which provides guidance on the management and calculation of depreciation for fixed assets held by agencies, organizations, or units This circular also addresses the treatment of fixed assets transferred to enterprises by the state, specifically excluding the calculation of the state capital portion within those enterprises.
[5] Nguyen Khanh Duy Anh (2021) Evaluate the differences between
Vietnamese Accounting Standards (VAS) and the International Financial Reporting Standards (IFRS) that impact the audit process of auditing fixed assets item in financial statements audit (Bachelor’s thesis, Banking
[6] Nguyen Quynh Anh (2022), Improving the audit of tangible fixed assets in financial statement audits performed by UHY Auditing and Consulting
Company Limited (Bachelor’s thesis, Banking Academy, Vietnam)
[7] Chuchkevych D., Pylypenko O., Bunda O (2022), Audit of fixed assets of the enterprise: Organizational and Methodological Aspect
(https://er.knutd.edu.ua/bitstream/123456789/22807/1/Innovatyka2022_V2_ P017-022.pdf)
[8] Nguyen Ngoc Diep (2022), Audit of tangible fixed assets in financial statement audit performed by CPA Vietnam Auditing Company Limited
(Bachelor’s thesis, Banking Academy, Vietnam)
[9] Nguyen Huy Dinh (2023), Enhancing the process of Auditing Fixed assets in
Auditing financial statements implemented by SCS Global Audit Company Limited (Bachelor’s thesis, Banking Academy, Vietnam)
[10] Asso Prof Dr Le Thi Thu Ha (2019), Basic Auditing course materials,
Banking Academy of Vietnam, Hong Duc Publisher
[11] Le Duc Khoa (2019), Audit process of fixed asset accounts and fixed assets depreciation expenses in financial statement audits performed by Global Auditing and Financial Consultancy Company Limited (Bachelor’s thesis,
University of Economics Ho Chi Minh City, Vietnam)
[12] Klychova (2017), Developing an audit system for business activities with fixed assets as a tool to improve the efficiency of social activities of enterprises, Journal of Engineering and Applied Sciences, 12(19):4966-4973
[13] Nguyen Thi Thu Lien (2019), Improving accounting for tangible fixed assets in Vietnamese enterprises in the context of international integration
(Doctor’s thesis, National Economics University, Vietnam)
[14] Sorin Domnişoru, Sorin Vợnătoru (2008), The Financial Audit Complexity of
The Fixed Assets, European Research Studies, Volume XI, Issue (4) 2008
[15] Hoang Dinh Thanh (2021), graduation thesis Improving auditing tangible fixed assets in financial statement audits performed by Ersnt & Young
Vietnam Company Limited (Bachelor’s thesis, Banking Academy, Vietnam)
Evaluating students' professional capacity and research abilities during the thesis writing process is essential This assessment includes analyzing their efforts, work efficiency, and the frequency of their communication with teachers The decision to allow students to protect their graduation thesis should be based on these evaluations, determining if they meet the necessary academic standards.