Improving audit procedures of tangible fixed assets in financial statement audits at ernst young vietnam company limited

I hereby declare the Graduation thesis “Improving Audit procedures of Tangible fixed assets in financial statement audits at Ernst & Young Vietnam Company Limited” is the result of my re

The necessity of the topic

The recent trend of economic integration within the countries has generated a demand for enhanced transparency in financial information Therefore, auditing companies and auditors have played an increasingly important role in the development of the economy, contributing significantly to the success of the country's innovation career in recent years

Currently, there is the emergence of numerous multinational corporations and the growing strength of domestic and foreign companies in terms of capital and asset scale One of the most important pieces of information that investors are concerned about is the tangible fixed assets of enterprises Tangible fixed assets and depreciation of tangible fixed assets play a crucial role in the business production process of a company

Moreover, the tangible fixed asset item on the balance sheet usually accounts for a significant proportion, so errors related to this item often have a significant impact on the financial reports of the company Audit of tangible fixed assets accounts holds significant significance within an audit engagement Enhancing the caliber of audit procedures related to tangible fixed assets aids auditors in elevating the overall quality of an audit, enabling the identification of potential accounting irregularities while also enhancing the management of tangible fixed assets

However, there are still many areas for improvement in the tangible fixed assets item and its audit The shortcomings can arise from various aspects, but the main issue lies in the incomplete environment for implementing the audit process, which needs to be improved and consolidated to enhance the quality of tangible fixed asset audits Recognizing the importance of the tangible fixed asset item for each business, along with a 3-month internship at Ernst & Young Vietnam Co., Ltd, I have decided to focus my graduate thesis on the topic of “Improving audit procedures of tangible fixed assets in financial statement audits at Ernst & Young Vietnam Company Limited.”

Literature review

Audit of financial statements in general, and specifically the audit of tangible fixed assets account, plays an increasingly important role in today's economy Various studies have been conducted on this topic from different perspectives, and most of them have highlighted the necessity of improving the audit procedures of tangible fixed assets in financial statement audits This is because tangible fixed assets account has a significant relationship with the auditor's opinion Some notable studies include:

“The Financial Audit Complexity of The Fixed Assets” by Sorin Domnişoru and Sorin Vợnătoru, which offers a detailed examination of auditing fixed assets The research sheds light on the challenges and intricacies associated with this field The authors initiate the exploration by discussing crucial concepts derived from specialized literature, emphasizing their significance The study primarily concentrates on tangible fixed assets and provides an outline of the methodological approach This approach encompasses various considerations such as the financial reporting framework, entity profile, and the role of fixed assets within the organization's system

In Vietnam, a noteworthy research paper is "Analysis of Fixed Assets Utilization" by Ms Dinh Thi Thu Hien (2022), which focuses on effectively utilizing fixed assets This study analyzes the equipment and utilization of fixed assets, highlighting their significance in the business production process The research suggests that a lack of fixed assets, despite an excess supply of raw materials and abundant labor, can lead to slow or interrupted production processes, impacting the outcomes Analyzing fixed asset utilization helps address these issues, allowing businesses to assess and implement scientific and rational measures to maximize mobilization, increase production output, improve labor productivity, and reduce costs

Furthermore, there have been numerous graduation theses that concentrate on auditing specific accounts within financial statement audits The Banking Academy of Vietnam has contributed several theses in this area, such as "Improving auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited" by Thanh, H.D.T (2022), "Improving audit procedures of fixed assets in an audit of financial statements at Deloitte Vietnam Company Limited" by

Thao, T.T.N (2020), and "Improving the audit of accounts payable in the financial statement audit conducted by Ernst & Young Limited Liability Company" by Anh, N.N.A (2023) These research studies evaluate the auditing of particular accounts in financial statement audits by comparing them against a theoretical framework The objective is to identify recommendations for enhancing audit procedures at Ernst & Young Vietnam

To summarize, prior research has primarily concentrated on ensuring the quality of assurance at Ernst & Young Vietnam and the audit procedures pertaining to particular accounts However, there has been a scarcity of studies examining the assessment of assurance quality by comparing audit methodology with a theoretical framework, particularly in the context of auditing tangible fixed assets Thus, the objective of this paper is to assess the assurance quality at Ernst & Young Vietnam by juxtaposing audit methodology with a theoretical framework and presenting suggestions to improve the auditing of tangible fixed assets in financial statement audits conducted by Ernst & Young Vietnam.

Research objectives

The main purpose of this thesis is to examine the existing audit procedures related to tangible fixed assets in the financial statement audit carried out at EY Vietnam Company Limited The specific objectives of this study are as follows:

Firstly, the thesis provides a comprehensive overview of the theoretical foundation concerning tangible fixed assets items, along with the process involved in auditing tangible fixed assets in the financial statement audits

Secondly, the thesis offers a concise introduction to EY Vietnam and conducts an analysis of the current audit procedures adopted for tangible fixed assets at the organization

Lastly, the thesis presents a set of recommendations aimed at enhancing the audit of tangible fixed assets within the financial statement audit process implemented by EY Vietnam Company Limited.

Research object and scope

The research subject of this thesis is auditing procedures of tangible fixed assets performed by Ernst & Young Vietnam Co., Ltd

 Content: Providing suggestions to enhance the auditing of tangible fixed assets in the financial audit conducted by Ernst & Young Vietnam Co., Ltd by evaluating the strengths and weaknesses in the audit procedures

 Location: The thesis utilizes data collected and analyzed from information obtained from EY and ABC Company

 Time duration: The research was conducted during the intern period, spanning from November 27th, 2023 to March 15th, 2024.

Research methodology

This thesis employs the following research methodologies:

The thesis collects secondary data from sources such as the curriculum, previous research studies, and relevant working documents obtained from EY Vietnam Primary data is gathered through observation, interviews, and real-life scenarios

To study the audit procedures related to tangible fixed assets in financial statement audits, the thesis utilizes techniques such as summarization, reasoning, and comparison to conduct a comprehensive analysis.

Research questions

The thesis is structured around three key research questions:

 What is the theoretical foundation for auditing tangible fixed assets?

 What is the current state of the audit of tangible fixed assets in the financial statement audit conducted by Ernst & Young Vietnam Company Limited?

 What are the strengths, weaknesses, and underlying causes of the auditing procedures for tangible fixed assets, and what recommendations can be made to enhance the audit procedures performed by Ernst & Young Vietnam Company Limited?

Structure of the thesis

Apart from the introduction, conclusion, and references, the thesis consists of three chapters

Chapter 1: Theoretical backgrounds on audit procedures of tangible fixed assets in financial statement audits

Chapter 2: Practice of audit procedures of tangible fixed assets in financial statement audits at Ernst & Young Vietnam Co., Ltd

Chapter 3: Recommendations for improvement of audit procedures of tangible fixed assets in financial statement audits at Ernst & Young Vietnam Co., Ltd.

THEORETICAL BACKGROUNDS ON THE AUDIT

Characteristics of tangible fixed assets that affect financial statement audits

1.1.1.1 The definition of fixed assets:

Fixed assets are a crucial component of labor resources, playing a significant role in the business operations of enterprises, especially those involved in manufacturing and production

Fixed assets are primarily labor resources and other valuable assets that participate in multiple business cycles and their value gradually transfers, in part, to the value of the products and services produced during each period Fixed assets can exist in tangible forms (tangible fixed assets) such as workshops, machinery, equipment, and management tools, as well as in intangible forms (intangible fixed assets) that also participate in multiple business cycles, such as land use rights and patents

There are various ways to classify fixed assets, but in accounting, they are typically based on criteria such as the nature of the asset, its function and utilization, ownership rights, and the source of formation According to Article 2 of Circular 45/2013/TT-BTC and Clause 2, Article 1 of Circular 147/2016/TT-BTC issued by the Ministry of Finance, fixed assets are classified into the following main types:

Tangible fixed assets: According to Vietnamese Accounting Standard No 03, tangible fixed assets are assets that have a physical form and are held by enterprises for use in appropriate production and business activities, meeting the recognition criteria for tangible fixed assets Tangible fixed assets participate in multiple business cycles while maintaining their original physical form until they are fully damaged Their value gradually decreases and is transferred to the value of the new products that the fixed assets contribute to producing or manufacturing

To be recognized as tangible fixed assets, an asset must meet all four of the following criteria:

+ It is certain that economic benefits will be derived from the use of the asset in the future

+ The original cost of the asset can be reliably determined

+ The estimated useful life is at least one year

+ It meets the required value criteria according to current regulations

According to current Vietnamese regulations (Circular No 45/2013/TT-BTC on depreciation of fixed assets dated April 25, 2013), the value of tangible fixed assets must be equal to or greater than 30,000,000 VND and have a useful life of at least one year

According to the provisions in Section A, Clause 1, Article 6 of Circular 45/2013/TT- BTC, tangible fixed assets are divided into the following 6 categories:

 Means of transport, transmission equipment;

 Perennial orchards, working animals and / or giving products;

 Other types of fixed assets

Intangible fixed assets: According to Vietnamese Accounting Standard No 04, intangible fixed assets are assets that do not have a physical form but can be valued and are held by enterprises for use in production, business operations, service provision, or suitable for leasing to other entities, meeting the recognition criteria for intangible fixed assets

Assets recognized as intangible fixed assets must satisfy the definition of intangible fixed assets and the same four criteria as tangible fixed assets recognition standards Intangible fixed assets do not have a specific physical form but represent an invested value Therefore, identifying intangible fixed assets separately is challenging When determining intangible resources that meet the definition of fixed assets, some factors need to be considered:

+ Identifiability: Intangible fixed assets must be capable of being identified separately to be independently leased or sold

+ Control: The enterprise must have the ability to control the asset, control the benefits derived from it, bear the risks associated with the asset, and prevent access to the asset by other parties

+ Future economic benefits: The enterprise can derive future economic benefits from intangible fixed assets through various forms

In accounting, intangible fixed assets are divided, based on their nature, into the following groups:

 Limited-term land use rights;

 Transfer licenses and other permits;

 Formulas and recipes, design models and prototypes

Finance-lease fixed assets: According to VAS no 06, a fixed asset is a leased asset in which the lessor transfers a significant portion of the risks and benefits associated with the ownership of the asset to the lessee The ownership rights to the asset can be transferred at the end of the lease term

A finance lease contract must satisfy one of the following five conditions:

+ The lessor transfers ownership of the asset to the lessee at the end of the lease term (i.e., the lessee purchases the asset)

+ At the commencement of the lease, the lessee has the option to purchase the leased asset at a price lower than the fair value estimated at the end of the lease term

+ The lease term encompasses a major part of the economic life of the asset, even if ownership is not transferred

+ At the commencement of the lease, the present value of the minimum lease payments amounts to a substantial portion of the fair value of the leased asset

+ The leased asset is of such a specialized nature that only the lessee has the ability to use it without any modifications or repairs

Similar fixed assets: are the ones with their similar utility in the same business area with equivalent value

1.1.2 Accounting for tangible fixed assets

1.1.2.1 Historical cost of tangible fixed assets

Tangible fixed assets in a typical enterprise can originate from various sources, including new purchases, construction investments, assignments or transfers, transfers, gifts, promotions, excess inventory discovered but not yet recorded in accounting books, and other sources Circular 45/2013 issued by the Ministry of Finance provides specific guidelines for recording the historical costs of tangible fixed assets for each source However, in this thesis, I will focus on presenting detailed information about two common cases: formation due to new purchases and formation due to construction investment

The original costs of tangible fixed assets formed by purchase:

Formula to determine the original costs:

The original costs of tangible fixed assets due to new purchases

Invoice Value – Trade discounts or sales off or penalties (if any)

Costs of transportation, loading and unloading, costs of repairing, renovating, upgrading, installing and testing - Recalls of products and scrap due to trial run

Taxes (excluding refundable taxes); fees and charges in accordance with the law on fees and charges

In which: a) Trade discounts or sales off or penalties (if any) are deducted from the invoice value, if the invoice value includes any trade discounts, sales off or penalties for the seller b) Other expenses (if any) are reasonable expenses directly related to the purchase of tangible fixed assets that have been spent by agencies, organizations, units or enterprises up to the time of handing over tangible fixed assets to use In case of incurring general expenses for many fixed assets, the expenses shall be allocated to each tangible fixed asset according to the appropriate criteria (quantity, invoice value of the fixed assets incurred) The original costs of tangible fixed assets formed from capital construction investment

The original costs of tangible fixed assets formed from construction investment is the final settlement value approved by a competent agency or person in accordance with the law on construction investment a) In case the property has been put into use (because the construction investment has been completed) but the settlement has not yet been approved by authorized agency or person, then the agency, organization, unit or enterprise shall execute the project recorded entry for tangible fixed assets from the date on which the Acceptance Certificate of the property are put into use The original costs recorded in the accounting books is the estimated original costs The estimated original costs in this case is selected in the following order of priority:

- Value determined according to acceptance certificate;

- The approved project estimated cost b) When a competent agency or person approves the final settlement, the agency, organization, unit or enterprise shall adjust the original cost temporarily calculated in the accounting books according to the approved settlement value; at the same time, redefine the remaining value criteria and accumulated depreciation of fixed assets to adjust the accounting books and perform accounting according to regulations c) In case the project includes many different items and assets (the subject of fixed asset accounting books) but there is no separate estimate and settlement for each item or asset, the value of tangible fixed assets shall be allocated by the estimates cost finalization approved by competent agencies or persons for each item or asset to record in accounting books according to appropriate criteria (construction area, quantity, detailed estimated value of each item)

1.1.2.2 Accounts system for tangible fixed assets

According to Circular 200/2014, account 211- tangible fixed assets comprises 6 sub- accounts:

- Account 2111 – Buildings and structures: records the cost of construction works, such as buildings, structures, hedges, basins, water towers, ground; or infrastructures, such as roads, bridges, railroads, peers, wharfs, etc

- Account 2112 – Machinery and equipment: records costs of machinery or equipment used in operation of an enterprise, including special-use machines; work machinery or equipment, technological lines and individual machines

- Account 2113 – Means of transportation and transmitters: records costs of means of transport, including roads, rail, waterborne, waterway, air, pipes and transmitters

- Account 2114 – Office equipment and furniture: records costs of equipment and furniture used in management, business and administrative management

- Account 2115 – Perennial plants, working and producing animals: records costs of fixed assets such as perennial plants, working and producing animals

- Account 2118 – Other fixed assets: records costs of other fixed assets not recorded to above sub-accounts a Increases tangible fixed assets

Similar to the sources of fixed assets are categorized, the accounting entries for asset increases are also divided into specific categories, each requiring a different accounting treatment In this thesis, I will provide the accounting diagrams for two commonly encountered forms: asset increase due to new purchases and asset increase due to the completion of capital construction

Increases due to new purchases:

Figure 1 1 - Accounting for increases of tangible fixed assets due to new purchases

(Source: Thien Ung Accounting Circular 200 Ministry of Finance)

Figure 1 2 - Accounting for increases of tangible fixed assets completed by capital constructions

(Source: Thien Ung Accounting Circular 200 Ministry of Finance) b) Reductions tangible fixed assets

As per Circular 200/2014, reductions of tangible fixed assets can occur in various cases, including disposal or sales, conversion into tools and instruments, capital contribution, and other instances of asset reduction The reduction of fixed assets within an enterprise typically happens on a regular basis and is anticipated by the company's accountants in terms of timing and the reasons for the reduction In this thesis, I will provide the accounting diagram specifically for the reduction of tangible fixed assets due to disposal or sales, which is the most commonly encountered scenario during a business period

Figure 1 3 - Accounting for increases of tangible fixed assets completed by capital constructions

(Source: Thien Ung Accounting Circular 200 Ministry of Finance)

1.1.2.3 Depreciation of fixed assets a Concepts and characteristics

Audit procedures of fixed asset in a financial statement audit

Tangible fixed assets hold significant importance as they constitute a substantial portion of an enterprise's total assets Given the high-value nature of transactions associated with tangible fixed assets, conducting an audit of this item is a complex and crucial task in financial statement audits Whether employing a systems-based approach or a risk-based approach, auditors must exercise prudence when undertaking an audit of tangible fixed assets The auditing process for tangible fixed assets in a financial statement audit can be delineated into three stages: Audit planning, Audit implementation, and Audit completion

1.2.1 Objectives, basis and used documents for tangible fixed assets audits

1.2.1.1 Objectives of tangible fixed assets audits

The primary goals of auditing tangible fixed assets are to gather suitable evidence to confirm the credibility of the relevant financial information disclosed in the financial statements, such as cost, depreciation, expenses, profits, and so on Additionally, it aims to supply pertinent information and documentation that can be utilized as supporting evidence during the execution of other related periodic audits

To achieve such general objectives, auditors must accomplish specific objectives related to tangible fixed assets The specific objective for tangible fixed assets is that auditors must gather sufficient evidence to demonstrate that the databases to verify audit assertions related to auditing tangible fixed assets transactions and the fixed asset account balances This evidence should demonstrate the accuracy and reasonableness of the databases, ensuring that they faithfully reflect the economic nature of the transactions and align with the unique business characteristics of the enterprise

The specific audit objectives of an audit of tangible fixed assets:

 Existence: The tangible fixed assets disclosed in the balance sheet correspond to tangible assets that physically exist and can be verified at the reporting date

 Completeness: The recorded tangible fixed assets encompass all relevant transactions that have occurred during the accounting period, ensuring comprehensive coverage

 Rights and obligations: The company possesses legal ownership rights over the tangible fixed assets as of the reporting date, establishing its rightful claim

 Valuation: The recorded balances of tangible fixed assets accurately represent their true economic value, reflecting their worth in accordance with appropriate valuation methodologies

 Presentation and disclosure: The balance of tangible fixed assets is appropriately presented in the non-current section of the balance sheet, while comprehensive and relevant disclosures pertaining to these assets are provided in the accompanying note to the financial statements

1.2.1.2 Documents for tangible fixed assets audits

In order to provide comments on the items pertaining to tangible fixed assets in the financial statements, auditors must rely on the following information and documents:

 Internal rules and regulations of the organization concerning the procurement, management, liquidation, and sale of tangible fixed assets

 Legal documents supporting transactions related to the acquisition, disposal, purchase, sale, and repair of tangible fixed assets, such as investment decisions, purchase and sale contracts, contract liquidation records, etc

 Relevant documents associated with the transportation, installation, and repair processes of tangible fixed assets, including payment records such as payment slips, debt notices, minutes of liquidation and sale of tangible fixed assets, etc

 General ledger and detailed accounting books of related accounts, such as the general ledger of relevant accounts, the detailed fixed asset register, the depreciation schedule for fixed assets, etc

 General and detailed accounting reports of related accounts, such as reports on the increase and decrease of tangible fixed assets, repair reports, payment reports, etc

 Key sources of accounting treatment documentation that directly support the assertions of the financial information presented in the audited financial statements

 Circulars issued by the Ministry of Finance and Vietnamese Accounting Standards No 03 and 04

1.2.2 The audit process for tangible fixed assets

Audit planning serves as the initial phase in the audit process with the primary objective of establishing a comprehensive audit strategy and detailed audit plan to ensure effective fieldwork This phase encompasses several key activities: a) Obtaining an understanding of the client and its environment

During this timeframe, auditors gather information about the client to gain a comprehensive understanding of the client unit's operations, accounting system, and internal control system This information is essential for identifying potential risks and determining the audit focus for each aspect of the engagement Specifically, when examining tangible fixed assets, auditors concentrate on collecting the following information:

Information about the client's legal obligations: This includes rules, regulations, contracts, and minutes from board of directors and management council meetings of the client company It also encompasses legal documents and records like capital contribution minutes and documents related to capital contributions involving fixed assets

Information about the entity’s business industry: auditors assess the overall economic conditions and the economic potential of the specific industry in which the client unit operates This involves gaining insights into specific aspects of the business, such as organizational structure, production line, and capital structure By acquiring this information, auditors can determine the proportion of tangible fixed assets in the client's total asset base This assessment helps in evaluating the materiality of tangible fixed assets' impact on the overall financial statements b) Performing preliminary analytical procedures

After collecting the information of the client and its environment, the audit team leader and audit manager proceed to conduct analytical procedures on the collected data to formulate the audit plan In the context of tangible fixed assets, performing analytical procedures during the planning stage allows auditors to gain a comprehensive understanding and identify significant changes in the accounting and financial policies of the entire enterprise throughout the financial year There are two basic types of analytical procedures In detail:

Trend analysis (horizontal analysis): examines the variations in account amounts on financial statements over a specific period During this type of analysis, auditors compare the information from the current year with that of the previous year, as well as review midyear data to identify significant discrepancies This helps them highlight any unusual differences that require further investigation

Proportional analysis (vertical analysis): assesses the proportion of tangible fixed assets in relation to associated control accounts By evaluating this ratio, auditors can determine the materiality of fixed assets c) Determining materiality and assessing risk

The auditor will conduct an initial assessment of materiality, considering the percentage of key accounts like profit, revenue, and total assets across the entire financial statements Subsequently, the auditor will allocate this estimated materiality to each account within the financial statements Typically, overall materiality is determined as follow:

Table 1 1 - Percentage allocation of materiality

Step 1: Establish the criteria for estimating materiality

Based on the information gathered from various sources about the client and their requirements, the auditor will determine the appropriate criteria to assess materiality for the financial statements of the company In some cases, for interim audits, the auditor may use estimates for the entire year based on prior estimates and actual figures up to the midpoint of the audit period

Step 2: Determine the overall materiality by selecting criteria, percentage, and providing an explanation for the selection in the appropriate section

Step 3: Determine the performance materiality

Performance materiality is a value or set of values established by auditors to reduce errors to an appropriately low level, ensuring that unadjusted and undetected misstatements do not exceed the overall materiality for the entire financial statement Performance materiality guides the content, timing, and extent of necessary audit procedures

Step 4: Establish the threshold for trivial errors/tolerable misstatement

Overview of Ernst & Young Company Limited

Company’s name: Ernst and Young Vietnam Co., Ltd

Address: 8th floor, Corner Stone Building, 16 Phan Chu Trinh, Hoan Kiem District, Hanoi, Vietnam

Email: eyhanoi@vn.ey.com

Representative: Mr Tran Phu Son

EY, also known as Ernst & Young Global Limited, is a multinational professional services partnership and one of the largest professional services networks worldwide It is considered one of the Big Four accounting firms, along with Deloitte, KPMG, and PwC EY offers a range of services to its clients, including assurance, tax, information technology, consulting, and advisory services These services cover areas such as managed services in cybersecurity, cloud computing, digital transformation, and artificial intelligence

The origins of EY can be traced back to various mergers of predecessor firms over the past 150 years The oldest ancestor firm, Harding & Pullein, was established in England in 1849 In 1894, the firm was renamed Whinney, Smith & Whinney after Frederick Whinney joined as a partner In 1903, Ernst & Ernst was founded in Cleveland, Ohio, by Alwin C Ernst and Theodore Ernst Arthur Young & Co was established in Chicago in 1906 by Scottish accountant Arthur Young These American firms later formed alliances with prominent British firms, resulting in the merger of Ernst & Whinney in 1979, creating the fourth-largest accountancy firm globally at the time In 1989, Ernst & Whinney merged with Arthur Young & Co., the fifth-largest firm

As part of the global EY organization, Ernst & Young established a representative office in Vietnam in 1989 In 1992, Ernst & Young Vietnam was officially incorporated as the first foreign-invested audit and advisory company in Vietnam, with a registered capital of 1 billion USD EY Vietnam has since become a trusted business advisor in the country, leveraging its extensive knowledge and understanding of the local business environment EY Vietnam provides professional services of the same caliber as clients expect worldwide, delivering insightful advice and added value to its clients

2.1.2 The main business lines, clients and recent business results

EY offers a wide range of diverse and comprehensive services, including:

Audit Services: EY Vietnam boasts a team of highly trained and experienced professionals in the field of auditing The company provides internal audit services, financial audit services, and other related auditing services

Tax Services: EY Vietnam offers diverse tax solutions for businesses, including tax advisory, tax reporting, tax management solutions, and mitigating tax-related risks

Transaction Services: EY Vietnam has a team of experts specializing in financial transactions, including company acquisitions, mergers, and strategic collaborations The company provides solutions to ensure successful transactions while minimizing risks

Growth Markets: EY Vietnam organizes events such as Entrepreneur of the Year and Entrepreneurial Winning Women to support and promote growth in the market

Specialty Services: EY Vietnam offers programs focused on climate change transformation, specialized services for Japanese businesses, and services tailored to family enterprises

Additionally, EY Vietnam provides other services such as risk management consulting, accounting advisory, and asset valuation All of these services are delivered by experienced professionals who have received thorough training at EY Vietnam

Among these services, auditing and assurance continue to generate the highest proportion of revenue for companies that undergo financial statement audits This is followed by advisory and tax services

EY Vietnam serves a diverse clientele spanning various industries In sectors such as real estate, manufacturing, hospitality, and retail, EY Vietnam acts as the official auditor for numerous businesses Some notable clients include Vingroup Corporation, Vietnam Pharmaceutical Corporation, Vietnam Posts and Telecommunications Group, Vina Capital, Hoa Phat Group, PAN Group, and more

In the banking sector, EY Vietnam has established a strong presence, serving major Vietnamese banks such as Vietnam Investment and Development Bank (BIDV), Bao Viet Bank, Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Military Bank (MB Bank), and others

Ernst & Young Vietnam Limited Liability Company is a member of the global

EY organization within the Asia-Pacific region and the Southeast Asian sub-region (ASEAN) The ASEAN Area Executive holds the highest decision-making authority within EY's ASEAN region It is responsible for various aspects, including accountability, implementing management strategies, quality control, risk management, market development, achieving growth targets, and ensuring the provision of high- quality human resources for member firms within the region

Ernst & Young has established itself as a prominent audit and advisory firm in Vietnam, consistently ranking among the top firms in terms of revenue Over the years, the company has successfully expanded its market presence, increased its revenue, grown its workforce, and made significant contributions to the state budget

In 2023, EY reported a total revenue of 1,376 billion VND This revenue was generated from various sources, including:

 Revenue derived from auditing the financial statements of public interest entities amounted to 296 billion VND

 Auditing the financial statements of other entities contributed 833 billion VND to the company's revenue

 Revenue from other services provided by EY, beyond auditing, reached 246 billion VND

These figures highlight the diversified portfolio of services offered by EY in Vietnam and its success in serving a wide range of clients across different sectors

EY Vietnam has established its presence through two offices situated in Hanoi and Ho Chi Minh City The main headquarters of the company is located in Ho Chi Minh City

The organizational structure of EY Vietnam encompasses four key divisions, which include: General Director, Partner, Administration Department, and Operation Department The organizational structure and management framework of the company are illustrated in the following diagram:

Figure 2 1 - Organizational structure of Ernst & Young Vietnam Co., Ltd

(Source: Ernst & Young Vietnam Co., Ltd)

General Director: The General Director of EY Vietnam holds the primary responsibility for overseeing and managing all operations and activities of the company within Vietnam This role involves making key decisions regarding the types of services offered by the company and formulating the business strategy Additionally, the General Director is accountable to EY Global for the performance and legal obligations of EY Vietnam

Partners: The Partners within EY Vietnam play a vital role in implementing the company's overall plans and strategies They work closely with the General Director and are responsible for executing the established strategies The Partners report the outcomes and achievements of these strategies to the General Director, providing updates on the progress made towards meeting the company's objectives

Accounting Department: This department is tasked with the management and oversight of financial accounting activities This includes the responsibility of preserving and increasing the company's capital while implementing necessary security measures Additionally, the department handles payment execution and transaction settlements as they arise

The practice of audit procedures of tangible fixed assets in financial Statement audits at

Audit planning serves as the initial phase in the audit process with the primary objective of establishing a comprehensive audit strategy and detailed audit plan to ensure effective fieldwork This phase encompasses several key activities:

2.2.1.1 Obtaining an understanding of the client and its environment

During this timeframe, auditors gather information about the client to gain a comprehensive understanding of the client unit's operations, accounting system, and internal control system This information is essential for identifying potential risks and determining the audit focus for each aspect of the engagement Specifically, when examining tangible fixed assets, auditors concentrate on collecting the following information:

Information about the client's legal obligations: This includes rules, regulations, contracts, and minutes from board of directors and management council meetings of the client company It also encompasses legal documents and records like capital contribution minutes and documents related to capital contributions involving fixed assets

Information about the entity’s business industry: auditors assess the overall economic conditions and the economic potential of the specific industry in which the client unit operates This involves gaining insights into specific aspects of the business, such as organizational structure, production line, and capital structure By acquiring this information, auditors can determine the proportion of tangible fixed assets in the client's total asset base This assessment helps in evaluating the materiality of tangible fixed assets' impact on the overall financial statements

At EY, after collecting the information of the client and its environment, the audit team leader and audit manager proceed to conduct analytical procedures on the collected data to formulate the audit plan In the context of tangible fixed assets, performing analytical procedures during the planning stage allows auditors to gain a comprehensive understanding and identify significant changes in the accounting and financial policies of the entire enterprise throughout the financial year There are two basic types of analytical procedures In detail:

Trend analysis (horizontal analysis): examines the variations in account amounts on financial statements over a specific period During this type of analysis, auditors compare the information from the current year with that of the previous year, as well as review midyear data to identify significant discrepancies This helps them highlight any unusual differences that require further investigation

Proportional analysis (vertical analysis): assesses the proportion of fixed assets in relation to associated control accounts By evaluating this ratio, auditors can determine the materiality of fixed assets

2.2.1.3 Determining materiality and assessing risk a) Assessment of materiality :

The auditor will conduct an initial assessment of materiality, considering the percentage of key accounts like profit, revenue, and total assets across the entire financial statements Subsequently, the auditor will allocate this estimated materiality to each account within the financial statements Typically, overall materiality is determined as follow:

Table 2 1 - Percentage allocation of materiality

(Source: Ernst & Young Vietnam Co., Ltd)

Step 1: Establish the criteria for estimating materiality

Based on the information gathered from various sources about the client and their requirements, the auditor will determine the appropriate criteria to assess materiality for the financial statements of the company In some cases, for interim audits, the auditor may use estimates for the entire year based on prior estimates and actual figures up to the midpoint of the audit period

Step 2: Determine the performance materiality (PM)

Performance materiality is a value or set of values established by auditors to reduce errors to an appropriately low level, ensuring that unadjusted and undetected misstatements do not exceed the overall materiality for the entire financial statement Performance materiality guides the content, timing, and extent of necessary audit procedures

Determining the materiality level (PM) requires the application of professional judgment, which is influenced by various factors These factors include the perspectives and expectations of financial statement users (such as entity owners, major lenders, tax or legal authorities) and EY’s understanding of the client and its operating environment Selecting the appropriate measurement basis for materiality is also a matter of professional judgment EY’s decision is guided by what they consider to be the most important financial statement measure (such as earnings, assets, equity, revenue, or expenses) for the users of the financial statement

Step 3: Determine the threshold for trivial errors/tolerable misstatement (TE)

The maximum limit is set at 4% of performance materiality This serves as the threshold for the auditor to aggregate detected misstatements into reclassification and adjustment entries (if the client agrees to these entries) or unadjusted entries (if the client does not accept these entries) These entries form the basis for the audit conclusion

Step 4: Determine the threshold of negligible error (SAD)

At EY, the predetermined threshold for misstatement is set at 10% of the performance materiality This threshold serves as a benchmark for capturing all discrepancies identified during the audit, including entries for adjustments and re- analysis (if the client agrees to make the adjustments) or non-adjustment entries (if the client agrees not to make the adjustments) The purpose of applying this threshold is to ensure that the auditor can effectively draw audit conclusions by addressing significant variances Variances below this determined error threshold are not required to be aggregated or considered in the audit process

Step 5: Consideration of prior year's materiality

If there are significant changes in materiality between the current and previous years, the auditor must assess whether the current year's materiality aligns with the entity's current business operations

Upon completion of the audit engagement, if there have been significant fluctuations in the selected criteria for determining materiality, the auditor must reevaluate materiality, provide an appropriate explanation, and conduct additional audit procedures if necessary b) Assessment of risk

The assessment of audit risks is performed by assessing three factors: inherent risk (IR), control risk (CR) and detection risk (DR), based on the relationship illustrated in the following model:

EY proceeds to make combined risk assessments, taking into consideration the identified risks, control testing results, and the overall risk environment This assessment helps determine the appropriate level of reliance on controls and the extent of substantive procedures required

Auditing tangible fixed assets in financial statement audits performed by EY

To have a better view of the audit procedures of fixed assets in an audit of FSs at

EY, the author selected the engagement of ABC Company Limited (“the Company”) as a typical example in this thesis ABC is a fabric and clothes manufacturing company established in Vietnam for 6 years and has been a long -time customer in EY

The Company has been a client of EY Vietnam since 2019 The audit contract is signed annually As requested from the client, the financial information is reviewed twice a year, one after 9 months of the fiscal year (interim audit) and one after the end of the fiscal year (year- end audit)

After the acceptance of the audit engagement, the Board of Managers of Ey will allocate the suitable partner-in-charge for the audit engagement and set timing for the fieldwork The audit team members and the audit time were decided based on the audit engagement and audit documentation of the previous financial year.The selection of the partner-in-charge is determined by assessing their independence, reviewing previous year audit documents and records, and considering the client's requirements The manager-in-charge is responsible for selecting the senior-in-charge, associates, and apprentices

The schedule of the audit is 5 days, from 8th January to 12th January 2024 Mr Nguyen Manh Hung is the Partner in charge who directly guided, supervised and reviewed the audit process As ABC Company used the audit service of EY for years, the audit team consisted of some members participating in the audit of ABC Company the previous year

Following the determination of the timetable and staffing, the planning phase was executed as follows:

Table 2 2 - Attendant of audit team of ABC Company

(Source: Ernst & Young Vietnam Co., Ltd)

2.3.1.1 Obtaining an understanding of the client a) An overview of ABC Company Limited

ABC Company is known as one of three member companies in Vietnam of a Group, a multinational corporation in the field of textiles and garments, with investment capital from Singapore The group implements a closed production chain from input raw materials to exporting finished products

The subject's goal is to manufacture knitted fabric as well as process garments for export

The Company’s normal course of business cycle is 12 months b) The main business lines

The principal activities of the Company are to produce knitted fabrics, crochet fabrics and other nonwoven fabrics; finishing textile products; sewing clothes, producing knitted and knitted cloths c) The business goals and strategy

Continuing the process of business restructuring and selective, efficient growth, the company focuses its resources on developing business in-depth It strongly emphasizes enhancing the quality of services and developing modern products and services

The Company’s owner has committed to provide finance support for the Company to meet its liabilities as and when these obligations fall due The Company’s owner also confirmed that no demand for payment for the amounts due from the

Company will be made until such time when liabilities to third parties have been settled and it is in a position to repay the same On this basis, the management considers it as appropriate to prepare the Company’s financial statements on the going concern basis d) Accounting system

- Applied accounting documentation system: The Company utilizes the General Journal system as its accounting documentation system

- Fiscal year: The Company's fiscal year for financial statement preparation begins on January 1st and concludes on December 31st

- Accounting currency: The financial statements are presented in VND, which is also the Company's accounting currency e) Accounting policies related to tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation

The cost of a tangible fixed asset encompasses its purchase price and any directly related expenses incurred to make the asset operational for its intended use

Costs incurred for additions, improvements, and renewals are added to the asset's carrying amount, while expenses for maintenance and repairs are recognized in the income statement as they are incurred

When tangible fixed assets are sold or retired, any gain or loss arising from the transaction (the difference between the net proceeds from disposal and the carrying amount) is reported in the income statement

Depreciation of tangible fixed assets is calculated on a straight-line basis over the estimated useful life of each asset as follows:

Table 2 3 - Estimated useful life of tangible fixed assets

(Source: Ernst & Young Vietnam Co., Ltd) f) Documents

Prior to commencing work at the client company, with the objective of gaining an understanding of the client's business situation, assessing risks, and identifying materiality, the audit team from EY requests that company ABC provide certain pre- established documents The requested documents include:

 Notes to the financial statements

To facilitate the audit of the tangible fixed assets category, the client should provide:

 General ledger for fixed assets accounts

 Fixed assets listing/ Fixed assets registered (FAR)

 Listing by project for account construction in progress

The audit team prepares a list of the required documents as described above and sends it to the client via a secure email channel The audit team must ensure that the list is accurately, precisely, and transparently transmitted to serve as appropriate audit evidence when necessary Upon receiving the documents from company ABC, the audit team proceeds to digitally store them in the audit file on CANVAS, following the guidelines prescribed by EY

2.3.1.2 Performing preliminary analytical review procedures

After obtaining an understanding of the client, the auditors performed review analytical procedures to evaluate the changes in the balance of fixed asset accounts and analyze the statements of profit or loss to evaluate the transactions of tangible fixed assets to determine any extraordinary changes

The changes in the balance of fixed asset accounts are calculated as follow:

Table 2 4 - The changes in the balance of fixed asset accounts

(Source: Audit documents and records of ABC Company)

Based on the table provided, it is evident that in 2023, the balance of fixed assets in ABS Company increased by VND 85,871,579,252, representing a corresponding growth of 6.46% This increase can be attributed to corresponding growth in accumulated depreciation expense and the cost of fixed assets These findings indicate the possibility of transactions related to changes in the cost of fixed assets within the company To provide an accurate assessment, auditors will conduct further procedures to verify this statement during the audit engagement

Assessment of tangible fixed asset audit procedures conducted by EY

EY Vietnam applies a rigorous approach to auditing, adhering to international auditing standards This auditing methodology is continuously updated, adjusted, and improved to align with the context and legal regulations of Vietnam In the current audit market, the quality of audits conducted by EY is highly regarded due to the following strengths:

The organizational structure of the audit team: Each member of the team has specific responsibilities, and their work is reviewed by superiors This decentralized review system helps mitigate audit risks and ensures adherence to quality auditing standards, contributing to EY's reputation in Vietnam and globally Audit partners, team leaders, and experienced auditors collaborate to develop a comprehensive audit plan that encompasses resource allocation and the design of the audit program

The meticulous and detailed audit plan: Before commencing an audit for a client,

EY develops an assessment plan which outlines the necessary documentation to collect and the procedures to follow in order to achieve the evaluation objectives This systematic and well-structured approach ensures that all relevant aspects are thoroughly examined and evaluated The audit program for fixed assets at EY is designed in a reasonable and logical order, following the requirements specified in the sample audit program issued by the government The detailed and comprehensive nature of the audit program facilitates cost and time efficiencies during the audit process

The confidentiality, storage, and management of records: Client documents are stored in both hard copy and electronic formats Hard copies are organized into standardized file sets, enabling easy retrieval and review Soft copies are stored on CANVAS, an internal platform designed for secure information storage and convenient access for senior leaders' review and evaluation Audit-related records are retained for a minimum of ten years after completing the audit By maintaining records of previous clients such as ABC, EY can access general client information and minimize the need for clients to repeatedly provide certain types of documents, unless significant changes occur Auditors assess the objectives and strategies that may impact the bank's financial indicators for the current year, not solely relying on previous records, and make appropriate adjustments and changes to the audit program to align it with ABC's operating periods

Performing audit procedures: With a meticulously designed audit program that is tailored to each business and adheres to Vietnamese Standards on Auditing (VSA) and International Standards on Auditing (ISA), the execution of audit procedures follows a logical sequence and yields high effectiveness

Selection of sample in tangible fixed asset inventory procedures: The quantity of tangible fixed assets in manufacturing companies is often substantial, making it impractical for auditors to perform a full inventory count In cases where the majority of fixed assets have significant and relatively equal values, the selection of the sample for inventory counting by auditors requires objectivity and reasonableness to ensure the effectiveness of the fixed asset inventory The EY Smart Sampling can provide strong and efficient support to auditors at Ernst & Young Vietnam in selecting the sample for testing while maintaining objectivity

Detailed examination of tangible fixed assets: Relevant documents such as invoices for additions, purchase contracts of tangible fixed assets, fixed asset registers, handover records, and acceptance minutes are thoroughly examined All necessary audit evidence for providing audit opinions is meticulously documented in the audit file

2.4.1.3 Audit finalization and reporting stage

Audit results review process: Ensuring the quality of audit results is crucial for

EY to maintain its reputation in the industry To uphold the high reliability of audit opinions, there is a rigorous review process for the working papers at each level, from low to high: the Audit Manager and Audit Director conduct initial quality reviews, and once approved at the first level, the Audit Partner performs a more thorough reexamination Only when the Audit Partner accepts the working papers are they considered to meet the standards and can be used to prepare the audit report

Audit report preparation: The preparation of the audit report is based on the consolidation of data from the approved working papers by the audit partner All the audit report undergoes a careful and meticulous "Casting" procedure to ensure there are no errors With this procedure, the auditors thoroughly review the entire content of the audit report to detect any errors or inconsistencies in presentation and data After undergoing two rounds of Casting without any remaining errors, the Audit Partner conducts a final review before signing and issuing the audit report

Client’s information gathering methods: EY places significant importance on gathering extensive and detailed client information to establish a strong basis for creating a comprehensive audit plan This information is usually obtained through written narratives and questionnaires Although flowcharts are commonly employed in the auditing industry for their simplicity and clarity, EY does not give them high priority due to the time they require Instead, EY auditors depend on direct client interviews and their professional knowledge to evaluate risks and formulate suitable audit procedures

It should be noted that since risk assessments are influenced by individual experiences, auditors' evaluations may contain a subjective component

The preliminary analysis procedures: Each industry or business sector has its own specific characteristics, so when planning an audit, it is necessary to compare important financial indicators between the audited client and its competitors or the industry average to provide a more objective and comprehensive view In reality, EY auditors have not prioritized this aspect and have only performed calculations on a few basic indicators Furthermore, EY lacks a specialized system for in-depth analysis of financial indicators during audits

Inadequate personnel allocation: EY has a vast number of clients, and this number continues to grow Furthermore, to ensure the quality of staff, the recruitment of new employees into the company is limited each year, which has not addressed the workload volume As a result, personnel assignments are often unreasonable, with auditors being required to participate in multiple audits simultaneously This not only affects the quality of the audits but also impacts the morale and well-being of the staff

Sampling methods: In certain instances, the use of sampling methods may not guarantee representativeness There are two main types of sampling methods: probability sampling and non-probability sampling EY employs a selection process for

"Key item" samples, focusing on those exceeding a certain threshold value EY utilizes software tools like Smart Sampling or EY random, or relies on the auditors' professional judgment to select additional samples In specific situations where time constraints and client support are factors, auditors often prioritize samples with substantial values for testing and evaluation This approach carries the risk of potential sample selection bias, as it may overlook small-value elements that could present inherent risks of errors or systematic fraud

Performing analytical procedures: EY has conducted preliminary procedures for tangible fixed assets, but they have not fully leveraged the potential benefits of these procedures Their analysis has primarily focused on horizontal comparisons of data across different years and vertical analysis through the calculation of financial ratios However, there is a notable absence of in-depth analysis using industry data or benchmarking against similar-sized companies As a result, auditors lack an objective and comprehensive understanding of the audited client's tangible fixed assets, limiting their ability to assess the true state of this account

RECOMMENDATIONS AND SOLUTIONS TO IMPROVE

The oriented development of Ernst & Young Vietnam Company Limited

In recent years, EY has maintained its position as the top revenue leader in the auditing industry in Vietnam With its brand slogan, "Building a better working world,"

EY consistently creates a dynamic and efficient working environment while striving to meet the diverse needs of its clients Through relentless efforts, EY aims to establish itself as the premier brand, not only in terms of revenue but also in terms of competitiveness in the market

Personnel: EY is continuously focused on improving the quality of its audit department's personnel Regularly, the company organizes training sessions with appropriate supplementary training programs for staff at different levels to ensure that auditors understand their job responsibilities, stay updated on changes related to accounting policies, audit regulations, and the latest market trends In parallel, EY also provides financial support programs for employees to pursue professional certifications such as ACCA, ICAEW, CPA, in order to enhance the professional expertise of auditors

EY also creates additional platforms and extracurricular activities to ensure a balanced work-life environment for its employees and foster strong bonds among all staff members Through these initiatives, EY aims to enhance job satisfaction and foster a strong sense of loyalty and connection to the company

Service quality: The quality of audit services at EY is always highly regarded, with a strong emphasis on service quality Therefore, EY implements the Global Audit Quality Review (AQR) program on a regular basis Under this program, inspection teams conduct cross-checks between EY branches at both the local and international levels using a random selection method to evaluate the quality of previous audit engagements EY's regular and multi-level quality reviews and procedures contribute to enhancing the company's reputation and image

Client network: As one of the top four global companies providing audit, assurance, and advisory services, EY continues maintaining its position In addition, it is important to strengthen the development of new areas in the era of the Fourth

Industrial Revolution, such as IT audit, to diversify services and generate additional income for the company Maintaining strong relationships with existing clients and ensuring the delivery of real value to them is crucial Services related to consulting, tax advisory, risk advisory, and financial advisory throughout the investment or establishment process of foreign clients should receive special attention.

The need for improving the tangible fixed assets audit procedures

In order to maintain its position as one of the top four audit companies, Ernst & Young Vietnam Company Limited should take appropriate measures to address any shortcomings in its audit procedures, particularly in relation to tangible fixed assets Enhancing the audit procedures for tangible fixed assets is essential for improving overall audit quality and reinforcing EY's reputation It results from these following conditions:

With the increasing globalization and the need for financial transparency, businesses are required to provide accurate and reliable financial information to attract investments To provide accurate and reasonable information, auditors must constantly improve their financial statement audit procedures to be more adaptable in different audit situations Fixed assets are a significant and critical item in financial statements, as they reflect the capacity and business performance of a company If the fixed asset item is inaccurately reported, it can impact long-term asset indicators in the balance sheet and expenses in the income statement, indirectly affecting the company's profitability

Competition from other auditing firms:

The field of auditing is experiencing rapid growth, leading to increased competition among audit firms due to economic development and integration To maintain its position, EY needs to focus on enhancing the skills and expertise of its employees through training and development programs Additionally, EY should address any shortcomings by improving its audit procedures for all aspects of financial statements It is also crucial for EY to prioritize client relationships and provide high- quality services Even if the audit quality is excellent, without nurturing client relationships, sustainable growth may be challenging, and there is a risk of losing long- standing clients

Adapting to the changes of accounting and auditing standards:

Accounting and auditing standards are crucial for maintaining precise, consistent, and transparent financial reporting As the global landscape evolves, these standards undergo regular revisions to align with international practices, such as the forthcoming adoption of the IFRS roadmap in Vietnam Consequently, audit firms bear the responsibility of staying informed and updated on these revisions By staying current with the latest developments in accounting and auditing standards, audit firms can improve their audit procedures and possess the requisite knowledge and tools to provide clients with dependable and high-quality financial information.

Principles and requirements for improving auditing tangible fixed assets in financial

Principles of improving auditing tangible fixed assets at EY:

Firstly, the procedures must adhere to State policies and regulations, ensuring compliance with the legal framework established by the government

Secondly, the procedures must align with management requirements, accounting standards, and auditing standards set by regulatory authorities

Thirdly, the improving procedures should be tailored to reflect the economic development landscape, taking into account the specific industry and market conditions

Furthermore, the procedures should be in line with EY's business operations, considering its unique organizational structure and activities related to tangible fixed assets

Lastly, the procedures should be designed in a manner that is easy to understand and implement, promoting efficiency, cost-effectiveness, and maintaining a proper balance between thoroughness and practicality

The requirements of solutions improving auditing tangible fixed assets at EY

The requirements for improving the audit procedures for financial statements, specifically regarding the audit process for tangible fixed assets, are as follows:

Firstly, it is necessary to ensure compliance with current regulations, policies, and established standards

Secondly, the audit procedures should be refined to ensure feasibility, effectiveness, efficiency, and cost-effectiveness

Thirdly, the completed audit procedures should be practical, comprehensive, and consistent with the overall audit process

Lastly, there should be a focus on developing and enhancing the knowledge, skills, and professional ethics of auditors, while also ensuring the quality of the audit engagement

3.4 Solution to improve auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited

The content of the solution:

In this stage, in addition to gathering internal data, auditors should focus more on collecting financial and non-financial information regarding the characteristics and data of the industry, business sectors, enterprises of similar scale, and the specific sector of the audited customer Beside evidence-gathering methods like interviews and observations, auditors can also refer to information from the media, such as newspapers and television, to assess significant audit risks more accurately and effectively

The basis of the solution:

According to Vietnamese auditing standard No 300 - Audit Planning, it stipulates that in order to carry out the audit of financial statements, auditors must have sufficient knowledge of the business operations to understand and identify the evidence, transactions, and practices of the audited entity that significantly impact the financial statements, the auditor's assessment, or the audit procedures Auditors and the auditing firm must develop an audit plan to ensure that the audit is conducted effectively As a result, auditors need to gather information about the client, such as general understanding of the economic situation, key business characteristics that affect the materiality of operating expenses The client is required to provide information on the industry, financial results, and changes in legal obligations compared to the previous year

Implementation measures of the solution:

For new customers, the information collection process is particularly crucial Therefore, auditors should collect information from various methods and different sources, while also exchanging information with previous auditors to gain a more accurate and specific perspective For recurring customers, auditors should review the audit files from previous years and communicate with the previous auditors if there has been a change in the assigned auditors to understand the customer's audit history Additionally, auditors should continuously interview, search, and gather any updated information about the customer during the current audit year to assess whether these changes pose any significant risks or errors If auditors find that no one in the audit team has the expertise or knowledge in a specific field to perform essential audit procedures, they can seek advice from experts to provide guidance

This type of information will partly assist auditors in designing an appropriate and effective audit strategy and procedures, reducing the workload, time, and potential audit risks All audits must gather information about the client and maintain complete client files in the audit documentation

The content of the solution

When conducting the preliminary analysis, EY should focus on understanding key financial indicators that have a relatively significant impact, particularly considering the client's unique business characteristics Subsequently, the analysis should involve comparing these indicators, such as comparing essential and significant metrics between the client and its competitors or within the overall industry

The basis of the solution

According to Vietnamese auditing standard No 520, Preliminary Analysis: it involves evaluating financial information by analyzing the logical relationships between financial and non-financial data This procedure also includes investigating, when necessary, any inconsistencies or significant deviations identified in comparison to other information or estimated values

Implementation measures of the solution

The auditor should thoroughly examine the client's financial statements, including the balance sheet, income statement, and cash flow statement By carefully scrutinizing these documents, the auditor can identify the key financial indicators that are most relevant to the client's business operations and performance Furthermore, the auditor should conduct a comprehensive analysis of the client's industry and market conditions such as market trends, competitors, regulatory changes, and any other factors that could impact the client's financial position By understanding the broader industry context, the auditor can assess the significance of the client's financial indicators and evaluate their alignment with industry norms and benchmarks

This is a procedure that helps auditors identify unusual trends and investigate the underlying causes of these abnormal variances It enables auditors to have a better overall understanding of the audited client and reduces the scope of work required in subsequent steps and stages

The content of the solution

When conducting personnel allocation, EY should prioritize a comprehensive workload assessment for each auditor to determine a realistic and manageable number of audits they can handle effectively

The basis of the solution

Currently, EY is experiencing a significant relative shortage of human resources compared to job demands However, every year, EY organizes recruitment in two periods: the internship recruitment period (usually at the end of July) and the audit assistant recruitment period (typically at the beginning of April) The number of personnel and the scale of recruitment are determined based on an assessment of personnel needs However, the shortage of human resources has not been significantly improved yet

Implementation measures of the solution

EY needs to consider opening additional recruitment program to compensate for the shortage of personnel, especially during periods when many auditors leave after busy seasons At the same time, EY needs to ensure the quality of new hires

Additionally, EY should conduct research and implement policies to retain existing staff, such as increasing base salaries, bonuses, allowances, and corresponding benefits based on different levels Especially during busy seasons, EY should enhance employee benefits to help alleviate some pressure and foster long-term commitment to the company

New employees and personnel at all levels within the company should participate in additional training courses and professional development programs EY should always encourage and support opportunities for auditors to pursue certifications such as ACCA, ICAEW, CPA, etc…

EY should continue to focus on organizing audit teams to ensure both quantity and quality of personnel, avoiding situations where one team member is burdened with excessive responsibilities This not only puts pressure on auditors when workloads are overwhelming but also risks compromising the quality of the audit

Improving personnel allocation will improve the quality of audits by ensuring that auditors have sufficient time and resources to thoroughly perform their tasks This will enhance the accuracy and reliability of audit findings and increase client satisfaction Furthermore, it will positively impact the well-being of the staff, reducing stress levels and promoting a healthier work-life balance This, in turn, can lead to higher employee retention rates and improved morale within the organization Finally, by prioritizing audits and allocating resources effectively, EY can better manage client expectations and maintain a strong reputation in the industry

The content of the solution

EY should review and revise the existing sampling methodology to ensure representativeness and minimize potential sample selection bias Besides, clear guidelines and criteria for sample selection, considering both quantitative and qualitative factors should be defined

The basis of the solution

Conduct a thorough analysis of the current sampling methods and their limitations, identifying areas for improvement

Study industry best practices and regulatory requirements to establish a solid foundation for enhancing sampling techniques

Implementation measures of the solution

Recommendations to improve the tangible fixed assets auditing process at Ernst &

3.5.1 For the Ministry of Finance and other agencies

Currently, auditing is one of the professions closely associated with the economy

In order to create favorable conditions for the development of the auditing field, the Ministry of Finance and other relevant state agencies need to:

Firstly, in the context of economic integration, the Ministry of Finance has been continually revising and updating regulations and circulars related to Vietnamese Accounting Standards (VAS) and Vietnamese Standards on Auditing (VSA) to bring our standards closer to international ones However, in each revision, the Ministry of Finance should carefully consider the changes to ensure they are suitable for Vietnam's specific circumstances, while also aligning with international standards and adapting to the rapid changes in the current economy

Secondly, there is an increasing interest from foreign investors in the Vietnamese market, which necessitates the adoption of International Financial Reporting Standards (IFRS) To address this, the Ministry of Finance should expedite the translation process of these standards It is crucial to provide clear explanations of specialized terms to avoid any ambiguity that could impact the application and content of the standards, particularly given that English is not our native language Moreover, Vietnam should enhance its legal framework to align with the requirements of IFRS, enabling the country to promptly adapt to economic renovation and development

Thirdly, when issuing and amending regulations, it is important for the Ministry of Finance and other relevant state agencies to ensure that these regulations are logically structured, easy to understand, and accompanied by specific guidelines and provisions that facilitate their practical implementation by entities

Lastly, the Ministry of Finance should regularly dispatch officials to conduct inspections and supervision of companies, assessing whether their actual operations comply with accounting regulations, decrees, and auditing standards This practice enables the Ministry of Finance to promptly grasp the operational situation of auditing entities, identify limitations, and take necessary actions It also helps in updating and supplementing regulations to better align with practical realities

3.5.2 For Vietnam Association of Certificate Public Accountants

The Vietnamese Association of Certified Public Accountants (VACPA) is a professional organization dedicated to promoting and advancing the expertise of auditors, improving the quality of accounting and auditing services, and upholding professional ethics To enhance the effectiveness of auditing financial statements and tangible fixed assets, VACPA should take into account the following recommendations:

Firstly, VACPA should actively and directly engage in the development and enhancement of accounting and auditing standards in Vietnam, as well as regulations controlling accounting and auditing services, in collaboration with the relevant government authorities

Secondly, VACPA should continuously improve and organize training programs and provide guidance on the implementation of audit procedures for auditing firms Besides, VACPA should encourage feedback and opinions on the limitations of audit programs and implement necessary improvements to establish favorable conditions for consistent auditing practices This will facilitate the inspection, supervision, and evaluation of the quality of auditing activities carried out by auditing firms

Thirdly, VACPA should arrange and provide guidance on the dissemination of legal documents pertaining to the profession to accountants and specialized audit departments This will ensure compliance with legal requirements for professional operations

3.5.3 For Ernst & Young Company Limited

Firstly, to enhance competitiveness in the context of international integration, auditing firms in general and EY in particular should prioritize the human factor EY should implement a comprehensive training strategy to improve the professional competence of their staff This includes recruitment and post-recruitment training, as well as annual training plans focused on enhancing expertise through professional programs to enhance both technical and professional skills, such as obtaining international certifications like ACCA and ICEAW, should be conducted

Secondly, EY should recognize and reward high-performing staff for their contributions and performance is crucial, while openly discussing mistakes to facilitate continuous improvement is equally important These activities contribute to a healthy work environment and enhance the quality of audit engagements It is necessary to establish specific regulations for auditing each specific aspect, ensuring high efficiency in the auditing process

Thirdly, the company should continuously improve the process of auditing financial statements, address limitations in auditing software, and enhance the efficiency of work for employees to ensure the quality of audited financial statements During the implementation process according to the standards, it is important for EY to ensure completeness and clarity, without rushing through any steps to meet targets All work results, before being handed over to businesses or individuals utilizing the services, should undergo rigorous review Each level and individual has the responsibility to ensure the full quality of services within their authorized scope

Firstly, auditors need to ensure a solid grasp of regulations, standards, and guidelines to ensure professional competency Additionally, they should continuously cultivate and enhance professional ethics while maintaining independence

Secondly, auditors should actively improve their knowledge and necessary skills, constantly accumulate experience to enhance their professional proficiency, and meet the market's requirements for auditors By diligently participating in accounting and auditing courses, pursuing professional certifications such as ACCA, CPA, and proactively seeking opportunities for research, creativity, and staying updated with economic developments, auditors can enhance the quality of audits and keep up with the dynamic business environment

Firstly, audit clients need to establish an accounting system that is scientific and logical, as well as prepare and present financial statements in accordance with the current regulations on financial statement preparation and presentation

Secondly, during the auditing process, the clients should provide timely and complete documentation to auditors to ensure efficient completion of their work Additionally, clients should give prompt feedback regarding adjustments and recommendations made by auditors to minimize errors and unfortunate risks during the audit, while ensuring the timely issuance of reports according to the plan

Chapter 3 of the thesis builds upon the strengths and weaknesses identified in the audit process of intangible fixed assets carried out by EY, as discussed in Chapter 2 This chapter focuses on proposing various solutions and conditions to enhance the audit of fixed assets in financial statement audits conducted by Ernst & Young Vietnam Company Limited, as well as other auditing firms in general