Enhancing the process of auditing fixed assets in auditing financial statements implemented by scs global audit company limited

LETTER OF DECLARATION I hereby declare that the Graduation thesis titled: "Enhancing the Process of Auditing Fixed Assets in Auditing Financial Statements Implemented by SCS Global Audi

LETTER OF DECLARATION

I hereby declare that the Graduation thesis titled: "Enhancing the Process of

Auditing Fixed Assets in Auditing Financial Statements Implemented by SCS Global Audit Company Limited" is my own research based on my internship at SCS

Global Audit Company Limited, which is under the scientific guidance of PhD Dao Nam Giang

The research contents and results are true and have not been published before The data in the table for analysis, comments and evaluation are collected myself from many different sources which are clearly stated in the reference section

In addition, the thesis also uses a number of comments, assessments as well as data of other authors, other agencies and organizations, all with citations and source annotations

If any fraud is found, I will take full responsibility for the content of my thesis Banking Academy is not related to the copyright violations caused by the performer during the implementation process (if any)

ACKNOWLEDGEMENTS

First of all, I would like to thank all the lecturers at Banking Academy in general as well as the lecturers in the Faculty of Accounting and Auditing in particular Thanks for all the knowledge and experience about Accounting - Auditing and many other fields Especially my instructor - PhD Dao Nam Giang has given me

a lot of advice and helped me to complete this thesis

In addition, I would also like to thank SCS Global Audit Company Limited, especially the company’s director – Mr Nguyen Manh Hien, the Head of Auditing Department – Mr Nguyen Van Hoang, along with many staff and colleagues who helped me in the real process of practice at the company

Through 3 months working at SCSA, I have had the opportunity to apply in practice the knowledge learned in school, and at the same time promote the ability to explore and create my own experience in jobs that require high care and precision

In the process of researching and presenting the thesis, due to the limited professional knowledge and time, the content of the work cannot avoid shortcomings

I hope to receive suggestions so that the graduate thesis can be improved

Once again, I would like to send my sincere and best thanks to all lecturers in Banking Academy

I wish you all good health and success in your career

Sincerely and Best regards!

TABLE OF CONTENTS

LETTER OF DECLARATION i

ACKNOWLEDGEMENTS ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vi

LIST OF TABLES vii

LIST OF FIGURES viii

INTRODUCTION 1

1 The rationale 1

2 Literature review 2

3 Research objectives 5

4 Research subject and scope 5

4.1 Research subject 5

4.2 Research scope 5

5 Research questions 5

6 Research methodology 6

7 Research structure 6

CHAPTER 1: THEORETICAL BASIS OF THE AUDIT PROCESS OF FIXED ASSETS IN AUDITING FINANCIAL STATEMENTS 7

1.1 An overview of fixed assets in auditing financial statements 7

1.1.1 Characteristics of fixed assets 7

1.1.2 Accounting for fixed asset 10

1.1.3 Common mistakes and risks for fixed assets 17

1.1.4 Internal control for fixed assets 18

1.2 The process of auditing fixed assets in auditing financial statement 20

1.2.1 Objectives and assertions for auditing fixed asset items 20

1.2.2 Audit planning 22

1.2.3 Audit implementing 24

1.2.4 Audit completing 25

CHAPTER 2: AUDITING FIXED ASSETS IN AUDITING FINANCIAL STATEMENTS IMPLEMENTED BY SCS GLOBAL AUDIT COMPANY

LIMITED 27

2.1 Introduction about SCS Global Audit Company Limited 27

2.1.1 The process of formation and development 27

2.1.2 Services rendered 28

2.1.3 Organizational structure 29

2.1.4 Audit files 35

2.1.5 Internal quality control 35

2.1.5.1 The internal quality control system 35

2.1.5.3 Quality control in audit work 37

2.1.5.4 Supervision quality control 38

2.2 General audit procedures implemented by SCSA 38

2.2.1 Audit planning 38

2.2.2 Audit implementing 44

2.2.3 Audit completing 47

2.3 Audit procedures for auditing fixed assets implemented by SCSA 49

2.3.1 Audit planning 49

2.3.2 Audit implementing 50

2.4 Audit procedures for auditing fixed assets of PAV Company 52

2.4.1 Audit planning 52

2.4.2 Audit implementing 61

2.4.3 Audit completing 77

2.4.4 Conclusion 79

2.5 Assessment of fixed assets audit procedures implemented by SCSA 79

2.5.1 Strengths 79

2.5.2 Limitations 81

2.5.3 Causes of limitations 82

CHAPTER 3: RECOMMENDATIONS TO IMPROVE THE FIXED ASSETS AUDIT PROCEDURES IMPLEMENTED BY SCS GLOBAL AUDIT COMPANY LIMITED 85

3.1 Development orientation of SCSA 85

3.2 Requirements for improving the audit of fixed assets item in the audit

of financial statements implemented by the SCSA 86 3.3 The need for improving the fixed assets audit procedures of SCSA 87 3.4 Requirements for improving fixed assets audit procedures at SCSA 88 3.5 Recommendations to improve fixed assets audit procedures at SCSA 89 CONCLUSION 93 LIST OF REFERENCES 94 APPENDIX 95

LIST OF ABBREVIATIONS

Abbreviations Original words

LIST OF TABLES

Table 1.1: Internal control of the operation of fixed assets 18 Table 2.1: Estimated appropriate materiality ratio 43

Table 2.3: Understanding about the client and its business environment 53

Table 2.4: Determination of planned and implemented materiality for

the audit

58

Table 2.5: Summary of working papers for fixed assets of PAV 60

Table 2.6: Comparison of useful life with Circular 45/2013/TT-BTC 75

LIST OF FIGURES

Figure 2.1: Organizational and management structure at SCSA 30 Figure 2.2: Management organization of SCS Global Audit Co., Ltd 33 Figure 2.3: Audit risk assessment process at SCS Global Audit Co., Ltd 42

Figure 2.5: Illustration of Balance sheet general analysis as at December

31, 2022 PAV Co., Ltd implemented by SCSA

56

Figure 2.6: Minutes of fixed assets inspection of PAV Co., Ltd 62 Figure 2.7: Compare the results of the inventory of fixed assets 63 Figure 2.8: Leadsheet of fixed assets as at December 31th, 2022 of PAV

Co., Ltd

65

Figure 2.9: Checking the increase of fixed assets 69 Figure 2.10: Checking the decrease of fixed assets 71 Figure 2.11: Depreciation table of fixed assets in PAV Co., Ltd 74 Figure 2.12: Depreciation expense allocation check 76 Figure 2.13: Calculation of residual value recognized in other expenses 76 Figure 2.14: Note 13 Intangible fixed assets - Audited financial

statements for the year ended 31 December 2022

77

Figure 2.15: Note 12 Tangible fixed assets - Audited financial statements

for the year ended 31 December 2022

78

INTRODUCTION

1 The rationale

The need to use transparent and reliable financial information has become a prominent trend The preferred source of reliable information is the audited financial statements by independent parties - usually companies providing audit services This does not mean that it is only in recent years that audit work has gradually received attention and respect In terms of users of the audit results, there are not only investors but also from the State Securities Commission, Investment funds, and Foreign parent companies In addition, the audited companies have the demand to use the audit services to check their internal control Since then, the customers of audit firms are not only public companies but also many types of businesses which are required to audit financial statements as well as businesses with other needs At this point, it seems that the profession of auditing or auditing companies seems familiar, but to find out, there are many interesting aspects that need to go a little deeper

The audit objective is to express an audit opinion on the true and fair view of the information presented in the financial statements of the audited enterprises The audit report can be considered as an overview picture of the results of the business operations in the most obvious way Therefore, the audit report helps users to avoid economic risks

One of the core information that readers are most interested in is the information about the business's fixed assets In a manufacturing enterprise, fixed assets are a part that accounts for most of the total assets of the enterprise Fixed assets are essential means of labor having a physical form that meets established standards

as fixed assets, which, although generating future economic benefits, participate in many economic cycles of the enterprise At the same time, fixed assets are also one

of the indispensable factors to create long-term and solid development for enterprises

In fact, transactions related to fixed assets in an accounting period are insignificant, but the fixed assets always have a noticeable value and require large investments so they are accompanied by financial risks Therefore, on an enterprise's financial

statements, this indicator is always considered as an important part and any errors relating to it, even the smallest, can seriously affect the business

However, the fixed assets item and the audit of this item still have many points

to improve The disadvantages can come from many aspects, but the main problem is that the environment for implementing the audit process is still incomplete, so it must

be improved and consolidated to improve the quality of the audit of fixed assets

Understanding the importance of the fixed asset item for each business, along with 3 months of internship at SCS Global Audit Company Limited, my graduate

thesis’s topic was decided to be: "Enhancing The Process of Auditing Fixed Assets in Auditing Financial Statements Implemented by SCS Global Audit Company Limited"

2 Literature review

After suffering heavy economic and financial losses due to the Covid-19 pandemic, now the world is going through a period with many rapid, complex and confusing changes Peace, cooperation and association for development are still major trends, but strategic competition among major countries is continuing to increase with diverse forms World economic growth is likely to grow slower than in the previous period, global information production and circulation change, and risks

in international financial and currency markets increase The Russian-Ukrainian conflict is complicated and difficult to control, with long-lasting and far-reaching impacts on all aspects of world life Amidst many macroeconomic fluctuations in the world, the U.S-Russia competition is currently the most concerning and it strongly affects the economy, finance, and politics around the world Vietnam is also being strongly affected

Each information in the financial statements is assessed by the auditor to be accurate based on all material aspects so that users can have the most general view of the business's financial position, thereby making recommendations and financial decisions One of the indicators with great value that can be affected by the current economic situation is "Fixed assets" In general, the company's fixed asset target does

not change much each year Due to the extremely difficult economic situation, some companies have to pledge, liquidate or mortgage their fixed assets to continue their operations This can also have an effect on the going concern principles of the company, with consequences for the economy in general and users of accounting information in particular

Recognizing the importance of the fixed asset item, there have been many domestic and foreign dissertations that have delved deeply into and found solutions

to improve the process of auditing this item In 2017, Klychova G., Zakirova A.,

Mukhamedzyanov K and his colleagues studied the topic: "Development of audit system for operation with fixed assets as a tool for efficiency improvement of social activity of the enterprise” to provide practice recommendations to improve the fixed

asset performance audit system as a tool to improve corporate performance The authors gathered audit evidence, papers and audit working opinions to determine the fixed asset metrics that affect the normal business operations of the enterprise However, the application of analytical procedures in the new study to the theory without going into the specifics of an audit work For SCS Global Audit Company Limited, the company applied analytical audits for fixed assets as necessary Therefore, the authors' research has created a premise for following generations to understand the importance of analytical procedures in auditing fixed assets

In Vietnam, the topic related to the audit of fixed assets is no longer a strange topic, it appears popular in many research papers these days As a student in Banking Academy, I can easily search for theses and research whose topics are about Fixed assets

There are some noticeable theses: “Enhancing the audit of tangible fixed assets in the audit process of financial statements implemented by An Viet Auditing Co., Ltd.” (2018) – Chu Thi Hoa; “Enhancing the audit process of tangible fixed assets in the audit of financial statements implemented by Dai Viet Valuation and Auditing Company Limited (VinAudit)” (2021) – Nguyen Ha Phương; “Enhancing the fixed asset audit process in the audit of financial statements implemented by Grant

Thornton Vietnam Co., Ltd.” (2022) – Nguyen Ngoc Trong; “Enhancing the process

of auditing fixed assets in the financial statement audit implemented by AASC Auditing Firm Co., Ltd.” (2022) – Nguyen Thi Quynh and so on In general, there is

not much difference among those theses, each of them clarified the theoretical bases related to fixed assets from which to analyze the current status of the audit of fixed assets implemented by each company and made recommendations and solutions

The thesis “Solutions to Enhance accounting of tangible fixed assets in Vietnam to meet the needs of international integration” (2020) – Ha Mai Linh is a

more open topic and effective with many audit firms In addition to the general knowledge that other courses provided such as General Principles and Accounting for Tangible Fixed Assets, this article also compared VAS 03 and IAS 16 and found out the development orientation of the Vietnam accounting system

In summary, the topics written on the audit of fixed assets in the audit of financial statements are no longer strange both in the world and in Vietnam, but I

found the topic "Enhancing the Process of Auditing Fixed Assets in Auditing Financial Statements Implemented by SCS Global Audit Company Limited" has not

been studied by anyone and the some of the recommendations in the above articles are no longer relevant to the current era Specifically, previous studies pointed out the advantages, the points that need to be improved or the factors affecting the quality of the fixed asset audit and suggested ways to improve the audit efficiency After the internship, I realized there are still some shortcomings in the audit process of the company In the following parts, the graduation thesis will present the audit process

of fixed assets items, its pros and cons, and especially the recommendations to improve the process

3 Research objectives

First , summarizing the theoretical basis of the fixed assets items, as well as

the process of auditing fixed assets in the financial statement audit

Second, surveying and evaluating the current status of auditing fixed assets in

the financial statements audit implemented by SCS Global Audit Company Limited

Third , proposing solutions to enhance the audit of fixed assets in the audit of

financial statements implemented by SCS Global Audit Company Limited

4 Research subject and scope

The thesis was built based on three main questions:

• What is the theoretical basis for auditing fixed assets?

• What is the current status of the audit of fixed assets in the audit of financial statements implemented by SCSA?

• What are strengths and weaknesses and the causes of fixed assets auditing procedures and the recommendations to improve the audit procedures performed by SCSA?

6 Research methodology

• Practical research methods include: Scientific observation method - actual observation of the process of auditing fixed assets items designed and implemented by SCSA, analytical method, and useful conclusions based on previous studies

• Theoretical research methods include: Theoretical analysis and synthesis methods - Collecting secondary data and original data in the process of auditing fixed assets in the audit of financial statements designed by SCSA, especially as: audit standards, audit files, audit documentation, WPs, etc

• Field research: Directly perform audit fixed assets at clients’ companies

7 Research structure

In addition to the Introduction and the Conclusion, the content of the thesis

consists of 3 main parts:

Chapter I: Theoretical basis of the audit process of fixed assets in auditing financial statements

Chapter II: Auditing fixed assets in auditing financial statements implemented

by SCS Global Audit Company Limited

Chapter III: Recommendations to enhance audit process of fixed assets in auditing financial statements implemented by SCS Global Audit Company Limited

CHAPTER 1: THEORETICAL BASIS OF THE AUDIT PROCESS OF FIXED ASSETS IN AUDITING FINANCIAL STATEMENTS

1.1 An overview of fixed assets in auditing financial statements

1.1.1 Characteristics of fixed assets

• Characteristics

The definition of fixed assets:

In Vietnamese Accounting Standard 03 and 04, fixed assets are divided into two main groups including tangible fixed assets and intangible fixed assets:

Tangible fixed assets are those with physical form, independent structure or is

a system consisting of many individual parts linked together to perform one or more certain functions Intangible assets have no physical form, those assets are formed through the process of operation or invested in the cost of creating assets by agencies, organizations, units and enterprises Both of them satisfy all three criteria simultaneously according to the Circular 45/2013/TT-BTC:

• It is certain that future economic benefits will be obtained from the use of the property;

• The property has a useful life of one year or more;

• The property has a historical cost of VND 30,000,000 (thirty million VND) or more

To be recognized as tangible fixed assets, assets must meet simultaneously all the following four recognition criteria due to the VAS 03:

• Future economic benefits will surely be obtained;

• Their historical cost has been determined in a reliable way;

• Their useful life is estimated at more than one year;

• They meet all value criteria according to current regulations

The nature of fixed assets:

Fixed assets are an essential part of an entity's normal business operations They participate in many business cycles leading to gradual wear and tear and their value (accumulated depreciation) is partially transferred to business expenses The value of fixed assets will not change unless it is dismantled, damaged or upgraded (adding new equipment) For fixed assets, determining the value and distinguishing between financial leases and operating leases is the most difficult problem

Classification of fixed assets:

Fixed assets may have many types with many forms, kinds of investment, uses and usage situations, etc In order to facilitate the management and accounting of fixed assets, it is necessary to arrange fixed assets into groups according to certain characteristics Each classification has different effects on the accounting and management of fixed assets

Fixed assets in enterprises are divided into tangible fixed assets and intangible fixed assets According to Section 6 (1) (a) of Circular 45/2013 of The Ministry of Finance (amended by Section 1 (2) of Circular 147/2016 of The Ministry of Finance) based on the purpose of use of fixed assets, enterprises classification is as follows:

+ Tangible fixed assets:

Type 1: Buildings and architectonic model: are fixed assets of the enterprise formed after the construction process, such as offices, warehouses, fences, water towers, yards, roads, bridges, railways, airport runways, piers, wharfs, embankments, decoration works for houses

Type 2: Equipment and machines: are used in business activities of the enterprise such as specialized machinery, working equipment, drilling rigs in the oil and gas field, cranes, technology lines, etc

Type 3: Transportation and transmit instruments: railways, waterways, roads, airways, pipelines and transmission equipment such as information systems, electrical systems, water pipes, conveyors

Type 4: Instrument and tools for management: are equipment and tools used

in the management of business activities of enterprises such as computers for management, electronic devices, measurement and quality control equipment and tools, dehumidifier, vacuum cleaner, anti-termite, etc

Type 5: Long term trees, working and killed animals: are perennial gardens such as coffee gardens, tea gardens, rubber gardens, etc; working animals and or for products such as horses, buffaloes, cows, etc

Type 6: Other fixed assets: are all other fixed assets not listed in the above five categories such as pictures and artworks

According to VAS 03, Tangible asset accounting is classified by groups of assets of the same nature and use purposes in the enterprises’ production and business operations, including:

• Building and architectonic model;

• Equipment and machine;

• Transportation and transmit instrument;

• Instrument and tools for management;

• Long term trees, working and killed animals;

• Other fixed assets

+ Intangible fixed assets: Land using right, Establishment and productive

right, Patent and creations, Trademark, Software, License and concession license, phonograms, video recordings, broadcast programs, industrial designs, etc

Due to VAS 03, The enterprises often make investment in order to acquire intangible resources such as the right to use land for a definite term, computer software, patent, copyright, aquatic resource exploitation permit, export quota, import

quota, right concession permit, business relations with customers or suppliers, customers’ loyalty, market shares, the marketing right, etc

• Features of the fixed asset item that affect the audit of financial statements

Fixed assets are often of great value, the acquisition and equipment process in enterprises is often not much and takes place irregularly Fixed assets often have a long useful life, and the management time of these assets is often long While using fixed assets, enterprises must depreciate these assets The application of a reasonable depreciation policy greatly affects the reasonableness of information related to fixed assets on the financial statements, especially the Balance sheet

Fixed assets can be upgraded and repaired, which may also affect the related information on the financial statements In the FS, a lot of information related to fixed assets such as historical cost, accumulated depreciation value; fees related to fixed assets such as expenses for allocation The change in fixed assets value affects profit targets, costs and business production results

Therefore, the accounting of fixed assets as well as the deduction of depreciation expenses need to be recorded correctly and accurately The fixed assets

on the balance sheet usually account for a large proportion and affect many indicators,

so errors in this item often have a material impact on the FS

1.1.2 Accounting for fixed asset

As described in Section 1.1.1, fixed assets are divided into two groups including tangible fixed assets and intangible fixed assets For each of the above types

of assets, the Ministry of Finance has issued specific guidelines in the standard (Circular 200/2014 of The Ministry of Finance) on how to recognize fixed assets

1.1.2.1 System of documents and accounting books

About accounting documents:

Documents organization is the design of the initial accounting workload on a system of reasonable and legal documents according to a certain document rotation process Documents used in accounting for fixed assets include: Purchasing agreement, purchase order, sales invoice, Minutes of handover of assets, Minutes of liquidation of fixed assets, Acceptance of work, Minutes settlement agreements for assets, Minutes of assets inspection, Minutes of settlement and liquidation of property purchase contracts, and Fixed assets depreciation table

About accounting books:

In order to timely and fully track information about fixed assets, businesses often use a bookkeeping system such as: Fixed asset card (for tangible fixed assets), Detailed book of fixed assets, and General ledger of accounts 211, 213, 214

1.1.2.2 Historical cost of fixed assets

Fixed assets at an ordinary enterprise can be formed by many different forms such as: New acquisition, Capital construction investment, Assignment, transfer; Transfer gifts and promotions; and Excess inventory has not been tracked in the accounting books and formed from other sources

For each source, Circular 45/2013 of The Ministry of Finance has specific instructions on how to record the historical cost of fixed assets, but, in this thesis, fixed assets formation is recorded in the two most common cases are: Formation due

to New acquisition and formation due to Capital construction investment

Historical cost of fixed assets formed by purchase

Formula to determine historical cost:

rebates/

penalties (if any)

+ Cost of transportation, loading and unloading, costs of repair, renovation, upgrade,

installation, test run

- 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

+ Other fees (if any)

a) Trade discounts/ rebates/ merchant penalties are deducted from the invoice value, applied if the invoice value includes any discounts or reduces the price or penalizes the seller

b) Other expenses are reasonable expenses directly related to the acquisition

of fixed assets that have been spent by agencies, organizations, units or enterprises

by the time the fixed asset is put into use

Historical cost of fixed assets formed by capital construction investment

The historical cost of fixed assets formed by capital construction investment

is the 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 a competent agency or person; then the enterprise shall make bookkeeping and accounting of fixed assets from the date on which the Acceptance Certificate is issued

to put the assets into use The historical cost recorded in the accounting books is the provisional historical cost The provisional historical cost in this case shall be selected

in the following order of priority:

- Value proposed for settlement;

- Value determined according to Acceptance Certificate;

- The approved project cost estimate

b) When a competent agency or person approves the final settlement; that organization, unit or enterprise shall adjust the historical cost temporarily calculated

in the accounting books according to the approved settlement value; at the same time, re-determine the remaining value criteria and accumulated depreciation of fixed assets in order 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; then the value shall be allocated the estimated value and finalization approved by a competent agency or person for each item or asset to be recorded in the accounting books according to appropriate criteria (area, quantity, detailed estimated value of the property, category)

1.1.2.3 Accounting methodology

a Increase and decrease of fixed assets accounting

Depending on each case of increase in fixed assets, the accountants will fully and promptly reflect on the accounting books and collect documents such as Purchase agreement, detailed invoices for installation and commissioning costs and other relevant documents

Cases of increase in tangible and intangible fixed assets include:

• New fixed assets: build more factories, purchase machinery and equipment;

• Fixed assets received from other entities as capital contribution;

• Fixed assets sponsored and donated;

• Fixed assets manufactured by enterprises to serve its production and business;

• Fixed assets formed by completion of capital construction investment, etc

Cases of reduction of fixed assets must reflect all procedures for correct determination of losses, expenses, income (if any) and, depending on each case, to record in accounting books

Cases of reduction of tangible and intangible fixed assets:

• Sale of fixed assets;

• Liquidation of fixed assets;

• Contributing capital to a joint-controlled business establishment using fixed assets;

• Loss, deficiency is detected during inventory;

• Fixed assets transferred to another unit, etc

b Fixed asset depreciation accounting

Concepts and characteristics

When fixed assets are put into use, its durability as well as the economic benefits brought by the asset decreases gradually as the asset has been worn out Therefore, each unit must perform the work of calculating the depreciation of fixed assets The calculation of depreciation occurs once a year in December, before closing the accounting books Depreciation is the systematic valuation, calculation, and allocation of the asset's value due to the wear and tear of the asset after a period Depreciation of fixed assets is included in production and business expenses during the useful life of fixed assets

Depreciation of assets has a direct impact on the FS, specifically on the taxable income of the business However, depreciation is not an actual cash expense, but is only deducted from the books It only affects the tax payable Depreciation of fixed assets is a cost element in the product cost of the enterprise, so the planning of fixed asset depreciation is included in the financial planning and is extremely important However, fixed assets are only allowed to be re-evaluated at their historical cost once,

so when changing the depreciation method, the unit’s accountant must make a

specific presentation to the FS

Depreciation method

Pursuant to Section 13 of Circular 45/2013 of the Ministry of Finance, there are three methods of depreciating fixed assets as follows: Straight-line method; Reducing balance method and the method of depreciation by the number and volume

of products Enterprises will base on the ability to meet the applicable conditions prescribed to choose the most suitable method In a financial year, the depreciation method will not be changed

Of the three methods of depreciation mentioned above, the straight-line method is chosen by most businesses This method depreciates a stable amount of fixed assets each year into the enterprise's production and business expenses Enterprises operating with high economic efficiency are entitled to rapid depreciation, but not more than twice the depreciation rate determined by the straight-line method in order to quickly innovate technology Specifically:

• Determine the average annual depreciation

• In case of buying fixed assets to use within the month:

Number of days used in the month = Number of days in the month – Start date + 1

c Upgrading and fixing fixed assets accounting

Concepts and characteristics

According to Section 2 (13), (14) of Circular 45/2013 issued on March 25,

2013 by the Ministry of Finance on “Guidelines for management, use and depreciation of fixed assets”:

Section 2 (13) Repairing of fixed assets: means the maintenance, replacement and repair of damage arising in the course of operation in order to restore operational capacity according to the original standard operating state of the fixed asset

Section 2 (14) Upgrading of fixed assets: means the activities of renovating, constructing, installing and supplementing fixed assets in order to improve the capacity, product quality, and functional features of fixed assets compared to their original level or prolong their useful life of the fixed asset; application of new production technology processes to reduce operating costs of fixed assets compared

to original

According to Section 7 of Circular No 45/2013 of the Ministry of Finance:

1 Expenses incurred by the enterprise to invest in upgrading fixed assets are recorded as an increase in the historical cost of such fixed assets These costs must not be accounted for in production and business expenses in the period

2 Expenses for repair of fixed assets are not considered as an increase in the historical cost of fixed assets but are directly accounted or amortized into business expenses in the period, but not exceeding 3 years

For fixed assets whose repair is cyclical, the enterprise may deduct repair costs according to the estimate into annual expenses If the actual amount spent on repair of fixed assets is larger than the amount deducted according to the estimate, the enterprise may add to the reasonable expenses this difference amount If the actual amount spent on repair of fixed assets is less than the deducted amount, the difference is recorded as a reduction in business expenses in the period

3 Expenses related to intangible fixed assets incurred after initial recognition are assessed reliably, increasing the economic benefits of intangible fixed assets compared to the initial level of operation, are recorded as an increase in fixed asset cost Other costs related to intangible fixed assets arising after initial recognition are accounted for production and business expenses

1.1.3 Common mistakes and risks for fixed assets

• Risks related to historical cost: The historical cost of fixed assets can be misrepresented in reality In case of increase (or decrease) of fixed assets, the historical cost recorded in the book is usually higher (or lower) than the actual cost

• Risks related to depreciation: Depreciation may be wrong in terms of calculation and allocation, because the depreciation calculation method of the unit is not consistent with current regulations and is not suitable with the method of economic benefits recovery of each fixed asset

• Risks related to repairing and upgrading: The repair of fixed assets can be misunderstood as upgrading fixed assets and vice versa This leads to errors not recording the increase in cost of fixed assets in case of upgrading by recording the cost of repairing fixed assets

1.1.4 Internal control for fixed assets

The arising fixed asset transactions are considered to be important and have

an impact on the operation and business performance, so these enterprises require a tight control process The basic work steps that must be taken to handle transactions

on fixed assets include:

• Confirming investment needs and making investment decisions for fixed assets;

• Organizing the receipt of fixed assets;

• Organizing the management and preservation of fixed assets in terms of kind and value;

• Processing and recording payments for purchases and investments in fixed assets;

• Reviewing and handling transactions of liquidation and sale of fixed assets and long-term investments, etc

Table 1.1: Internal control of the operation of fixed assets

Objectives Contents, forms and procedures of control

There are sufficient documents related to the operation: proposals for purchase transactions, sale and liquidation contracts; delivery records, purchase invoices, documents related to transportation, installation, test run, etc;

All vouchers must be legal, valid, and guaranteed not to be erased, modified and subject to internal control;

The relevant documents must be numbered and managed in the detailed book

Full regulations on the order of recording transactions related to fixed assets from detailed accounting books to general accounting books;

An internal audit policy for the above contents

Data must be calculated fully and accurately;

Checking the calculation results, comparing the aggregated data from the detailed books with the general books

1.2 The process of auditing fixed assets in auditing financial statement

Fixed assets are important items, accounting for a high proportion of total assets of enterprises Transactions related to fixed assets are often of great value, so the audit of the fixed asset item is always a complicated and important job in the audit

of FS Therefore, no matter a systems-based approach or a risk-based approach, the auditor must take caution when performing an audit of this item The process of auditing fixed assets in the financial statement audit can be seen through three stages including: Audit planning, Audit implementation and Audit completion

1.2.1 Objectives and assertions for auditing fixed asset items

The general objectives of an audit of fixed assets are to collect appropriate evidence from which to confirm the reliability of the relevant financial information presented in the financial statements: cost, depreciation, expenses, profits, etc; at the same time, provide relevant information and documents as reference assertions when performing other relevant periodical audits

The specific audit objectives of an audit of fixed assets:

- Verifying assertions on the process of accounting for fixed assets:

• Occurrence: All fixed asset transactions recorded in the period are actually incurred, there is no overwriting transaction

• Accuracy: Fixed asset transactions are determined in accordance with current accounting principles and regimes and are correctly calculated without errors

• Completeness: Transactions of fixed assets arising in the period are fully reflected and monitored in the accounting books

• Classification: All fixed asset transactions in the period are properly classified according to the provisions of relevant accounting standards and regimes and specific regulations of the enterprise These transactions are accounted for in the correct order and accounting method

• Presentation: transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and

understandable in the context of the requirements of the applicable financial reporting framework

• Cut-off: Fixed asset transactions are recorded in the correct period according

to the accrual accounting principle

- Verifying assertions of fixed asset balance:

• Existence: All fixed assets presented by the enterprise in the financial statements must actually exist at the reporting time The data on the report must match the actual inventory data of the enterprise

• Rights and obligations: All reported fixed assets must be owned by the enterprise, for financial lease fixed assets must be under the long-term control

of the enterprise on the assertions of the signed lease contract

• Correctness: the balance of the fixed asset account is assessed in accordance with the standards, accounting regime and specific regulations of the enterprise

• Accuracy, valuation and allocation: determining the balance of fixed assets is correct without errors

- Verifying assertions for presentation to financial statements:

• Sufficient: all fixed assets are fully presented in the financial statements (no omissions or omissions)

• Classification: Fixed assets are properly classified for presentation in the financial statements

• Accumulation: the accumulated data on the detailed books of fixed assets are correctly determined; the transfer of data from detailed accounting books to general accounting books and general ledgers without errors

• Reporting and Presentation: Indicators related to fixed assets in the financial statements are determined in accordance with the provisions of accounting standards and regimes

To make comments on the items related to fixed assets in the financial statements, the auditors must base on the following information and documents:

• The internal rules and regulations of the unit related to the procurement, management, liquidation and sale of fixed assets;

• The legal assertions for transactions of increase, decrease, purchase, sale and repair of fixed assets such as investment decisions, purchase and sale contracts, contract liquidation, etc;

• The arising documents related to the process of transportation, installation and repair of fixed assets, relevant payment documents such as payment slips, debt notices, minutes of liquidation and sale of fixed assets, etc;

• General ledger and detailed accounting books of related accounts such as: General ledger of related accounts, Detailed book of fixed assets, Table of depreciation of fixed assets, etc;

• General and detailed accounting reports of related accounts such as reports on increase and decrease of fixed assets, repair reports, payment reports, etc;

• Relevant financial statements;

• The major sources of accounting treatment documentation provide evidence directly related to the assertions of the financial information presented in the audited financial statements;

• Circulars of The Ministry of Finance and Vietnamese Accounting Standard

No 03, 04

1.2.2 Audit planning

Regarding audit software:

In the context of increasingly powerful science and technology, the application

of machines to work and daily life help people reduce costs, time and improve productivity and quality for work And the field of auditing is no exception

The actual survey shows that the audit work at auditing companies is mainly done manually, without the support of specialized audit software This, making the audit takes a long time and is prone to errors The storage of information about clients

as well as the auditor's working records is done only on paper, which is not convenient

for reviewing and supplementing information and is easy to lose

Regarding internal control system assessment:

The information collected about the client not only helps the auditor to make

an initial assessment of the audit risk, but also can help the auditors to identify preliminary risks that may affect the entire audit and the risks identified for each specific item

This work is often implemented by audit team leaders, as this requires high professional judgment and understanding of the client Based on the results, the audit team leader draws the issues that need attention and forms a detailed audit plan suitable for each client However, the evaluation of the internal control system for the fixed asset item is usually done through interviews or the use of questionnaires This

saves audit time but its quality is not high and sometimes inconsistent

Regarding the determination of materiality:

This is the final work in the overall audit planning stage Commonly used metrics in determining materiality are accounting profit before tax, sales or total assets Depending on each audit work, the auditors will choose the corresponding criteria to determine the appropriate materiality However, the establishment of materiality is often based on the experience, or subjective judgment of the auditor, which sometimes leads to the situation that there will be different materiality results

among auditors, affecting the audit conclusions

Regarding detailed audit planning for fixed assets:

There are currently six potential errors that are always identified as likely to occur in any audit These are the potential errors related to transactions (completeness, occurrence, classification, and cut-off) and errors related to the preparation of financial statements (accuracy and presentation) Detailed audit planning is always associated with the purpose of detecting the above potential misstatements Specifically, with the audit cycle of fixed assets, checking the correctness of prices and presentation of transactions related to fixed assets ensures that the recognition is calculated correctly

Checking the existence and completeness to ensure that there is no difference between the actual fixed assets and the information in the books In general, the detailed audit plan for the fixed asset item of the audit firms is considered to be suitable for the audit objectives When performing an audit, the auditors will flexibly apply suitable procedures, at the same time, the auditor may also perform alternative audit procedures if the original procedures in the audit program are not feasible

1.2.3 Audit implementing

Currently, auditing firms encourage auditors to use analytical procedures rather than substantive tests For the fixed assets, horizontal analysis procedures are applied by comparing the value of fixed assets (historical cost, accumulated depreciation, carrying amount) between this period and the previous period to detect unusual fluctuations Auditors also apply vertical analysis procedures such as comparing the rate of return on total fixed assets, or the historical cost over total assets between periods When making comparisons, auditors need to find out and clarify the impact of factors causing natural fluctuations on fixed assets and point out doubts about possible errors which can happen

In this stage, the most important thing is to choose an analytical model as there are many models that help the auditors assess the true and fair information of fixed assets Depending on the type of business, each model will be selected to be the most optimal For example, for a new customer, there is no reliable data like the previous year's audited data, so the auditors should choose a proper estimation model based on its business plan, fixed asset procurement plan for the year and the rate of change of the entity's figures Audit firms also need to develop the model in the direction of detailed data and can be detailed into smaller models to increase the audit accuracy

When performing fixed asset analysis procedures, analytical techniques based

on industry averages are rarely used If the current year is the first audit year, the auditors may use industry averages to compare Comparing the ratio of fixed assets

to total assets of the client with the industry average data provides the auditors with

an overview of the client's business performance and the reasonableness

Typically, clients have an average market position and the ratio of fixed assets

to total assets of the customer is approximately the industry average If the ratio of fixed assets to total assets of the customer is much higher or much lower than the industry average, unless a reasonable explanation is required, the information will be considered as virtual information The explanation for such unusual fluctuations can

be that the customer has an industry advantage or disadvantage If a reasonable explanation for such fluctuations cannot be obtained, the auditor should consider the hypothesis that the fixed asset has been overstated or understated in order to take advantage of incentives Then, the auditor will design audit procedures to check this hypothesis

In addition, audit firms have not really linked analytical procedures with detailed checks when detecting unusual signs The frequent use of analytical procedures in auditing financial statements is an outstanding point in auditing important items and cycles such as fixed assets, but this also creates inadequacies for detailed inspection procedures

In some cases, auditors tend to find explanations for discrepancies in the accounting department instead of in another department After being explained, the auditor did not take action to verify those explanations, but considered the difference

to have been satisfactorily explained

1.2.4 Audit completing

When the audit is over, the audit team leader and the manager of the audit firm will summarize the results, re-evaluate errors, prepare and issue the audit reports, at the same time review and re-evaluate the quality of the audit work implemented

The review of the working papers of the auditor work should be carried out strictly The quality control mechanism of auditing firms should be built according to Vietnam Auditing Standard No 220 – Auditing Quality Control This is one of the factors that ensure the success of the audit work

CONCLUSION OF CHAPTER 1

In chapter 1, the Graduate thesis presented two primary sections which related

to the theoretical basis of fixed assets audit procedures in the financial statements audit

The first section covered the overview of fixed assets in FS auditing This section described the definition, the characteristics, the terms of nature and accounting for fixed assets Besides, some common risks of fixed assets and their internal control were also listed

The second section outlined the process of auditing fixed assets according to the objectives and assertions The fixed assets audit procedures were based on the planning, implementing and completing stages of an audit

CHAPTER 2: AUDITING FIXED ASSETS IN AUDITING FINANCIAL STATEMENTS IMPLEMENTED BY SCS GLOBAL AUDIT COMPANY

LIMITED

2.1 Introduction about SCS Global Audit Company Limited

2.1.1 The process of formation and development

SCS Global Audit Company Limited (SCSA) is a multi-members limited liability company incorporated in Vietnam pursuant to the Enterprise Registration Certificate number 0106087882 issued by Hanoi Department of Planning and Investment for the first time on January 17, 2013, and the latest amendment was the 10th time on October 13, 2022

International name: SCS Global Audit Company Limited

Short name: SCSA CO., LTD

Company’s type: Non-state limited liability company with 2 or more members Address: 3rd floor, GP Invest building, 170 La Thanh Street, O Cho Dua Ward, Dong Da District, Hanoi, Vietnam

Tax code : 0106087882 / Phone: 0422002555

In 2013, SCS Global Audit Company Limited was established by a number of experienced auditors and consultants They were working at Big4 as well as large consulting firms, banks and financial institutions

In the early years of operation, SCS Global Audit Co., Ltd focused on building

a qualified workforce and providing auditing, accounting and tax services to invested enterprises in Vietnam After developing a familiar customer base, the company expanded its business scope to the field of consulting such as: consulting

foreign-on strategy development, establishing existing business management informatiforeign-on systems, offering special support to review financial information and determine business value in mergers and acquisitions, etc

In order to maintain the company’s stability and development of its main business, the company joined SCS Invictus - the only official global network in Vietnam The company has gradually integrated with the world and enhanced the professional capacity of its human resources SCSA ‘s goal is to become one of the leading financial consulting and auditing firms in Vietnam The company provides valuable services to clients by working with experts and accessing scientific works

as well as in-depth insights into current business fields

2.1.2 Services rendered

Financial audit is the main service of the Company The company's customer base is diverse and they operate in key areas of the economy such as software production, production and trading of electronic components and industrial machinery and equipment, food technology, etc

- Assurance services:

• Auditing and reviewing statutory financial statements;

• Auditing financial statements for tax purposes;

• Checking financial information on the basis of pre-agreed procedures;

• Reviewing and converting FS in accordance with Vietnamese Accounting Standards (VAS) into International Accounting Standards;

• Internal audit

- Non-assurance services:

a Accounting and consulting services - outstanding services of the company

• Guiding of programming and management accounting papers;

• Guiding of preparing and recording accounting books;

• Guiding of preparing financial statements;

• Consulting on building and organizing an accounting system;

• Consulting on building an appropriate management reporting system;

• Consulting on building accounting software;

• Providing bookkeeping services, preparing financial statements, preparing tax reports, etc

b Tax consulting service

• Consulting on current tax laws, assessing tax compliance;

• Tax risk management;

• Tax registration and declaration service;

• Tax assessment and compliance filing;

• Review of tax returns prepared by clients;

• Assessment of taxes impact on economic contracts or decisions;

• Assessment of taxes impact on accounting measures;

• Tax settlement support;

• Tax complaint service, tax refund ensurement the interests of businesses in the tax field and respects the law promulgated by the State;

• Comprehensive tax consulting services

c Other services

• Training and guiding the current Vietnamese and international corporate accounting regime;

• Training on current tax regulations in Vietnam;

• Practical guiding to corporate management accounting;

• Practical guiding to corporate financial management;

• Practical guiding on corporate internal control system and internal audit;

• Developing HR plan based on client's business development plan;

• Developing a reasonable remuneration policy for employees in order to maximize the potential of employees;

• Supporting clients in the process of interviewing and recruiting personnel in the fields of finance, accounting and corporate governance

2.1.3 Organizational structure

2.1.3.1 General organizational structure

In terms of the department organization, the structure is quite simple, but it still has full of necessary functions to serve the objectives and business activities There are 2 Partners and 3 Managers with annual updated practice registration

certificates and also many experienced staff in the fields of auditing, accounting, tax consulting, etc along with the interns working at the company

The most responsible are the two Partners at SCSA:

Mr Nguyen Manh Hien - Partner & Legal representative of the Company

Mr Phan Le Thanh Long - Partner

In addition, at each office in Hanoi and Ho Chi Minh, there are Managers responsible for supervising and assigning work directly at the specific office including:

Mr Nguyen Van Hoang & Ms Nguyen Thi Hong Nhung - Manager of Hanoi office

Mr Nguyen Duy Thinh - Manager of Ho Chi Minh office

The management apparatus of the company is organized according to the

management hierarchy, functions and tasks as follows:

Figure 2.1: Organizational and management structure at SCSA

(Source: Human Resources Department of SCS Global Audit Co., Ltd)

The structure of SCSA is divided into four main parts: Partner, Manager, Administrative Department and Business Department Partner is the highest position and is fully responsible for all activities of the company Partners directly manage the affairs of the office in Hanoi and indirectly manage the work of the Ho Chi Minh through the Director Partners cooperate with Managers in charge of each office to develop short and long term strategies of the company

Managers are people acting on behalf of the Partner to manage and be responsible for the company's offices Managers have the role of managing the work

at the office, urging the implementation of the strategic plans set out by the BOD, and regularly reporting the status of the company

All members of the BOD are responsible for directly assessing audit risk, assessing clients, making decisions and being representatives of the company in making contracts with clients They also do the final reviews of the audit files and sign the audit reports and management letters

Next, the system of departments directly performs professional tasks:

The Administrative department consists of the Accounting department, Information technology department, Human resources department and Administration department

• Accounting department: Managing and monitoring financial situations, implementing the process of cost and revenue accounting, and promptly informing the BOD of the Company's financial issues

• Information technology department: Providing hardware and software equipment to support the company's employees in performing their work The department is also responsible for building and managing the internal network system for the company

• Administration department: Being in charge of storing and providing document files and stationery for each employee when required There is also

a driver department to serve the travel needed of jobs to ensure the working progress