Improving Auditing Tangible Fixed Assets In Financial Statement Audits Performed By Ersnt Young Vietnam Company Limited.pdf

CHAPTER II: THE PRACTICE OF AUDITING TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENTS AUDITS PERFORMED BY ERNST & YOUNG VIETNAM COMPANY LIMITED .... The current status of auditing tangible

BANKING ACADEMY ADVANCED PROGRAM

DECLARATION

I hereby declare that this is my own research work The research contents

and results in this topic are honest and have not been published in any form before

The data in the tables for analysis, comments and evaluation are collected by the

author myself from different sources, 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 quoted

If any fraud was found, I will take full responsibility for the content of

my thesis Banking Academy is not related to the copyright violations caused by

me during the process (if any)

Hanoi, May 2022

Author

Hoang Dinh Thanh

Ha, thank you for your dedication to helping me successfully complete my graduation thesis

Finally, with deep respect and gratitude, I once again sincerely thank and wish the Board of Directors of Banking Academy, teachers, and all the brothers and sisters at Ernst & Young Vietnam Company Limited to have wonderful health, success and career advancement

Thank you very much!

Hanoi, May, 2022

Author

Hoang Dinh Thanh

TABLE OF CONTENTS

DECLARATION i

THANK YOU ii

LIST OF ABBREVIATIONS vi

LIST OF TABLES, DIAGRAMS vii

INTRODUCTION 1

1 The necessity of the topic 1

2 Literature review 2

3 The objectives of the study 5

4 Research object and scope 5

5 Research questions 5

6 Research methodologies 5

7 Overall structure of the graduation thesis 6

CHAPTER I: THE THEORIES OF AUDITING TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENT AUDITS BY INDEPENDENT AUDITORS 7

1.1 Characteristics of tangible fixed assets that affect financial statement audits 7

1.1.1 Characteristics of tangible fixed assets 7

1.1.2 Accounting for tangible fixed assets 8

1.1.2.1 Record original costs of tangible fixed assets 8

1.1.2.2 Accounts system for tangible fixed assets 10

1.1.2.3 Depreciation of tangible fixed assets 13

1.1.3 Risks of frauds and errors relating to tangible fixed assets 15

1.1.4 Internal control for tangible fixed assets 16

1.2 The process of auditing fixed assets item in financial statement audits 17

1.2.1 Objectives and bases for auditing tangible fixed assets 18

1.2.2 The audit process 19

1.2.2.1 Audit planning 19

1.2.2.2 Audit fieldwork 20

1.2.2.3 Audit finalization and reporting 22

CONCLUSION OF CHAPTER I 23

CHAPTER II: THE PRACTICE OF AUDITING TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENTS AUDITS PERFORMED BY

ERNST & YOUNG VIETNAM COMPANY LIMITED 24

2.1 Overview of Ernst & Young Vietnam Company Limited 24

2.1.1 The process of formation and development 25

2.1.2 Functions, duties and business lines 25

2.1.3 The management structure of the company 26

2.1.4 Financial statement audits performed by Ernst & Young Vietnam Company Limited 31

2.2 The current status of auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited 34

2.2.1 Auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited 35

2.2.1.1 Audit planning 35

2.2.1.2 Audit fieldwork 44

2.2.1.3 Audit finalization and reporting 46

2.2.2 Auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited for JKL Company Limited 47

2.2.2.1 Audit planning 47

2.2.2.2 Audit fieldwork 63

2.2.2.3 Audit finalization and reporting 70

2.3 Comments and evaluations on auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited73 2.3.1 Advantages 73

2.3.1.1 Audit planning stage 73

2.3.1.2 Audit fieldwork stage 74

2.3.1.3 Audit finalization and reporting stage 75

2.3.2 Limitations and causes of limitations 76

2.3.2.1 Audit planning stage 76

2.3.2.2 Audit fieldwork stage 77

2.3.2.3 Audit finalization and reporting stage 78

CONCLUSION OF CHAPTER II 79

CHAPTER III: RECOMMENDATIONS TO IMPROVE THE PRACTICE OF AUDITING FIXED ASSETS FINANCIAL STATEMENTS BY ERNST & YOUNG LIMITED LIABILITY COMPANY 80

3.1 Future development orientation of Ernst & Young Vietnam Company Limited 80

3.2 Principles and requirements for improving auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited 82

3.3 Solution to improve auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited 82

3.3.1 Audit planning stage 83

3.3.1.1 Improving internal control description 83

3.3.1.2 Improving internal control evaluation 84

3.3.2 Audit fieldwork stage 85

3.3.2.1 Improving the application of analytical procedures 85

3.3.2.2 Improving the use of expert opinions and sampling methods 87

3.3.3 Audit finalization and reporting stage 88

3.3.4 Other recommendations 88

CONCLUSION OF CHAPTER III 89

CONCLUSION 90

LIST OF REFERENCES 91

APPENDIX 92

LIST OF ABBREVIATIONS

LIST OF TABLES, DIAGRAMS

Diagram 1.1 Accounting for increases of tangible fixed assets due to new

Table 2.5 EY new accounting policy related to other items 49Table 2.6 EY internal control evaluation questionnaire table 53Table 2.7 EY Materiality selection for JKL Company Limited Table 57Table 2.8 Allocate materiality to each level for fixed assets 59Table 2.9 EY Audit program for JKL Company Limited Table 60Table 2.10 Balances of accounts of fixed assets before and after the audit 65Table 2.11 Comparing asset recognition with Circular 45 66Table 2.12 Test of details of the increases and decreases of fixed assets of

Table 2.13 Recalculation of fixed asset depreciation made by EY 68Table 2.14 Presentation of fixed assets of JKL Company 71Table 2.15 Notes to the financial statements of tangible fixed assets of JKL

Table 2.16 Notes to the financial statements of the company's intangible

INTRODUCTION

1 The necessity of the topic

Faced with the proliferation of businesses from all industries, the need to understand the information presented in financial statement becomes more urgent than ever In addition, the "push" from the US-China trade war and the sudden outbreak of the Corona virus pandemic have made the need for financial statement audits more urgent not only by businesses in Vietnam, but also around the world, people are facing difficulties and now need a "lighthouse" to illuminate the next steps to firmly step through this crisis Now, auditing has become a specialized field, a specialized major and a guideline for everyone who participating in business

With the audit purpose of giving an objective opinion on the truthfulness and reasonableness of the information presented in the financial statement of the audited enterprise, the audit report can be said to be a clearly reflection of the business results through the financial statement of the audited units in material aspects, thereby helping users to make accurate decisions, avoiding economic losses for themselves and Vietnam's economic market in general

One of the core information which readers are most interested in is the tangible fixed assets of the business Because, tangible fixed assets are not only the physical and technical bases of the unit, but when users look at it, they will partly know the existing production capacity as well as the level of scientific development status and economics position of the audited enterprise Moreover, tangible fixed assets are also one of the key factors creating the sustainable and long-term development of a business entity In fact, transactions related to tangible fixed assets in an accounting period are not many, but they are always of high value and require large investments, along with significant risks in financial aspects of the entity Therefore, on the financial statement of the entity, fixed assets always took a large proportion and if any violation even at minimal level can affect to the whole entity

Recognizing the importance of tangible fixed assets to the financial development prospects of the business, and more than three months of internship in

a professional working environment at Ernst & Young Vietnam Company Limited,

I have decided to choose the topic: "Improving auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited" as the research topic for my graduation thesis

2 Literature review

A new decade that promises a lot of good things and potential for economic development are commented by the world's leading economists at the end of 2019 However, the Covid-19 pandemic has created a strong and unexpected blow to the whole of society, causing negative effects not only on human health but also on the aforementioned economic development potential Many experts in Vietnam believe that it will take three years for the Vietnamese economy to return to the growth momentum as at the end of 2019, but for the global economy, this number may be larger Facing difficulties and challenges from the Covid pandemic, auditing firms around the world will be a solid foundation to promote global investment and sustainable economic development in each country Each information in the financial statements is reviewed and assessed by the auditors for correction based

on material aspects so that users can have the most general view of the financial status of the enterprise and make informed financial decisions One of the indicators with great value that can be influenced by the current economic context is "Tangible fixed assets" Every year, the target of tangible fixed assets of an enterprise usually has little change, however, due to the extremely difficult economic situation, some enterprises may have to pledge, dispose or mortgage their tangible fixed assets to maintain operating This may also lead to an impact on the going concern principle

of the enterprise, which has adverse consequences on the economy in general and the users of accounting information in particular

Realizing the importance of tangible fixed asset, there have been many domestic and international research on this issue and solutions to improve the process of auditing fixed assets In 2017, Klychova G., Zakirova A., Mukhamedzyanov K and colleagues researched the topic: "Developing an audit system for business activities with fixed assets as a tool to improve the efficiency of social activities of enterprises" aims to develop practical recommendations to

improve the audit system for fixed asset operations as a tool to improve business performance By systematic approach, replication and deductive and comparative methods, the authors have collected audit evidence, auditor's working documents and audit opinions to determine how fundamental indicators of fixed assets affect the normal operation of the enterprise In particular, the authors also show that the use of analytical procedures will help the auditors collect more quality audit evidence However, the application of analytical procedures in the new study stops

at the theory without going into specifics of an audit firm, and for EY Vietnam, the company has only applied analytical procedures to the auditing fixed asset at the preliminary level Therefore, the author's research has created basic foundation to teach me about the importance of analytical procedures in the audit of fixed assets

In Vietnam, Ms Dang Thi Giang, 2019, also studied how to "Improve the audit of fixed assets in the audit of financial statements at An Viet – Hai Phong Auditing Services Company Limited" In the thesis, by theoretical research methods and practical methods, she has achieved certain results based on both theoretical and practical aspects The author has presented very detailed and complete procedures for auditing the fixed assets of An Viet – Hai Phong Auditing Services Company Limited general and for a specific client unit is Tien Phong Packing Corporation Company From that, the author gives advantages and disadvantages in the process

of auditing Tien Phong fixed assets and proposes some improvement measures such as: fostering the qualifications of auditors through ACCA, ICAEW courses, completing improve the selection of audit samples through the consistent use of a method, application of analytical procedures to the audit of fixed assets, etc It can

be said that the author's recommendations are close and appropriate to the current situation of the company at that time and they have contributed to completing the process of auditing the fixed assets part in the audit of the company's financial statements

Besides, In Vietnam, there are many other studies written on how to improve the process of auditing fixed assets in financial statements audit, but for me, Ms Du Mai Phuong's thesis: “Improving the audit of fixed assets operations in the audit of financial statements at UHY auditing and consulting services company limited” is

probably the most typical and most influential to me because the audited client is also in the field of media like JKL Company Limited Thanks to the detailed research in the context of 2012, I have gained an understanding of the development process of the media field in general and JKL company in particular, from which to make recommendations to improve in auditing fixed assets designed by EY in the most appropriate way

I also have found a research thesis were written in 2021 by Mr Nguyen Khanh Duy Anh on the related to the topic that I have choosen which are the thesis:

“Revaluate the differences between auditing fixed assets according to VAS and IFRS” This thesis had help me understand deeper on how fixed assets was recorded correctly due to the lastest update of the accounting standard so that I can get a better accuracy analysis aspect on my thesis

A work of scientific research also related to the above topic belongs to Ms Pham Thi Thu Ha, 2013 also gave me certain ideas about my thesis The author's research topic is: "The current status of the audit of fixed assets and some measures

to improve the process of auditing financial statements in general and the process of auditing fixed assets in particular for An Phat Auditing and Consulting Company Limited accounting consultant” At that time, her project could be considered a pioneer at Hai Phong University of Tourism and a pioneer at An Phat Auditing and Consulting Company Limited The results of the study are larger than that of Ms Dang Thi Giang's thesis because the author also offers measures to improve the financial statement audit process on many parts and focuses more deeply on the fixed assets The documents and knowledge in the research paper have been considered as complete and detailed in both theory and practical and the recommendations given by the author are also reasonable in the business context However, at present, those recommendations are not enough and new ideas are needed to develop a better process of auditing fixed assets

In conclusion, previous studies have shown the strengths and weaknesses of the host company or the factors affecting the quality of the audit of fixed assets and suggested ways to improve efficiency of the audit, but with the current Covid-19 pandemic having a negative impact on the current economic development potential,

I realize that the current audit processes of Ernst & Young Vietnam Company Limited are still at a loss and I want to do this topic to study it more deeply and put

it into practice when I go to work officially at the company

3 The objectives of the study

With a structure of three separate but complementary chapters:

Firstly, the thesis gives readers a basic understanding of the process of auditing fixed assets in financial statements audit

Secondly, I will give the practical analysis of auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited and also cover a specific client in particular so that point out some limitations of the process

Thirdly, through the practical approach and my experience gained from the internship at the two companies, I will make some recommendations to improve auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited

4 Research object and scope

The object of study of the thesis is the actual auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited The scope of the study is auditing tangible fixed assets in financial statement performed by Ernst & Young Company Limited, Hanoi branch, and the practice of auditing tangible fixed assets at the client unit, JKL Company Limited since December 31, 2014 to 2021

5 Research questions

The thesis is built on two main questions:

- What is the practice of auditing tangible fixed assets of Ernst & Young Vietnam Company Limited?

- What are the solutions to improve auditing tangible fixed assets of Ernst & Young Vietnam Company Limited?

6 Research methodologies

- Practical research methods include: scientific observation method - practical observation of the process of auditing fixed asset items designed and

implemented by Ernst & Young Vietnam Company Limited and analytical method – based on thesis, previous research to draw useful conclusions

- Theoretical research methods include: theoretical analysis and synthesis method - collection of secondary and primary data on auditing tangible fixed assets in the financial statement audits in general and performed by Ernst & Young Vietnam Company Limited design in particular such as: auditing standards, working papers of auditors,

- Field study: Directly conducting audit of fixed assets at JKL Company Limited

7 Overall structure of the graduation thesis

In addition to the declaration, acknowledgments, table of contents, list of abbrevations, tables, introduction, conclusion, list of references and appendix, the structure of the thesis consists of three main chapters as follows:

Chapter I: The theories of auditing tangible fixed assets in financial statement audits performed by independent auditors

Chapter II: The practice of auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited

Chapter III: Recommendations to improving auditing tangible fixed assets in financial statement audits performed by Ernst & Young Vietnam Company Limited

Once again, I would like to thank the manager department of Ernst & Young Vietnam Company Limited and the auditor brothers and sisters who helped me during the internship and provided me with necessary and valuable data I would also like to express my deep gratitude to the leaders of Banking Academy and especially to Asso Prof Dr Le Thi Thu Ha has helped, facilitated and provided me with sincere advices to be able to successfully complete this thesis

CHAPTER I:

THE THEORIES OF AUDITING TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENT AUDITS BY INDEPENDENT AUDITORS 1.1 Characteristics of tangible fixed assets that affect financial statement audits

The global economic market operates like a small version of the world, where each business and organization considered as a living individual Each of those individuals are like humans, they need a body to maintain life activities and fixed assets is the most perfect body of the business When outsiders look in, they can judge the "health" of the business based on the fixed assets that the business is holding However, even the healthiest body can still fall ill and a person, no matter how talented, can still make mistakes Therefore, in order to have the most objective view of the "body of the business" and a treatment plan, we need to better understand the nature, common mistakes and the process of auditing fixed assets in the audit financial statement accounting

1.1.1 Characteristics of tangible fixed assets

For those who do not know much about economics major then according to the Vietnamese dictionary, fixed assets can be understood as documents used in production and business, as opposed to current assets However, for those with knowledge of the economic field, fixed assets are all the assets of an enterprise of great value, with a period of use, rotation and recovery of more than 1 year or 1 business cycle (if the business cycle is large or equal to 1 year)

In Circular 45 issued on 25 April 2013 divided fixed assets into two main groups including tangible fixed assets and intangible fixed assets:

Tangible fixed assets are those with physical form, independent structure or a system consisting of many separate parts linked together to perform one certain function or several functions, which satisfying all 3 criteria simultaneously: It is certain that future economic benefits will be obtained from the use of the product Has a useful life of 01 (one) year or more and has the original cost of VND 30,000,000 (thirty million VND) or higher

Intangible fixed assets are assets that have no physical form in which agencies, organizations, units and enterprises have invested in the cost of creating assets or formed through the process of operation, satisfying all 3 criteria at the same time: it is probable that future economic benefits will be derived from the use

of the asset; Has a useful life of 01 (one) year or more and has the original cost of VND 30,000,000 (thirty million VND) or more

The nature of fixed assets is an essential part of the normal production and business activities of an entity They participate in many business cycles lead to depreciation in their value which is partially transferred to business expenses Unlike ordinary workers, the appearance 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 are the most difficult issues and because of this, businesses need accountants who are knowledgeable in finance fixed assets and knowledgeable about the guiding circulars on the recognition of fixed assets

1.1.2 Accounting for tangible fixed assets

As described in section 1.1.1, fixed assets are divided into two components 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 standards (Circular 200/2014) to guide corporate accountants on how to recognize fixed assets

1.1.2.1 Record original costs of tangible fixed assets

Tangible fixed assets at an ordinary enterprise can be formed by many different forms such as: formation due to new purchases, formation due to construction investment, formation due to assignment or transfer, formation due to transfer, gift, promotion, formed because when the inventory is discovered excess has not yet been tracked in the accounting books and formed from other sources For each source, Circular 45/2013 issued by the Ministry of Finance has specific instructions on how to record the historical costs of tangible fixed assets, but in this thesis I will present in detail about two cases The most common cases in

enterprises are 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:

+

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

+

Other expenses (if any)

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 purchases

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 authorised 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 proposed for settlement;

- 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, tangible fixed assets have account number

211 and include 6 small accounts (2111-2115, 2118) with descriptions respectively: 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 For a typical business, during a

financial year, fluctuations in the balance of tangible fixed assets on the balance sheet arise more often than in intangible fixed assets However, because the value of each fixed asset is very large and has a material influence on the "health" of the company, therefore, compared to other indicators, the balance of fixed assets usually does not change or little change These changes can be divided into two main types: increase and decrease in tangible fixed assets during the period

a Increases tangible fixed assets

Similar to the source of fixed assets, the accounting entries for the increase in assets are also divided into corresponding categories and each type will have a different accounting scheme In the thesis, I will present the accounting diagram of two popular forms: increase due to new purchases and increase due to completion of capital construction

Increases due to new purchases

Diagram 1.1 Accounting for increases of tangible fixed assets due to new purchases

Source: Thien Ung Accounting Circular 200 Ministry of Finance Increases due to completion of capital construction

Diagram 1.2 Accounting for increases of tangible fixed assets completed by

capital constructions Source: Thien Ung Accounting Circular 200 Ministry of Finance

b Reductions of tangible fixed assets

According to Circular 200/2014, the cases of reductions of tangible fixed assets include: Reduction due to disposal or sales; Reductions due to conversion into tools and instruments; Reductions due to capital contribution; Other cases of reductions of tangible fixed assets The annual reduction of fixed assets in the

enterprise occurs unsually and is dispatched before the event and is foreseen by the enterprise accountants in terms of the time as well as the reason for the reduction of fixed assets In the thesis, I will present the accounting diagram on the reductions of tangible fixed assets due to disposal, sales (The most common occurrence in a business period)

Diagram 1.3 Accounting for reductions of tangible fixed assets due to disposals

Source: Thien Ung Accounting Circular 200 Ministry of Finance

1.1.2.3 Depreciation of tangible fixed assets

a Concepts and features

When tangible fixed assets begin to be put into use, the durability of the asset

as well as the economic benefits brought by the asset has decreased because the asset has been depreciated Therefore, in the accounting work of tangible fixed assets, each unit must perform the work of calculating the depreciation of tangible fixed assets The calculation of depreciation of tangible fixed assets is done once a year in December, before closing the accounting books

Depreciation is the systematic valuation, calculation, and allocation of the value of an asset due to the depreciated of the asset after a period of use Depreciation of tangible fixed assets is included in production and business expenses during the useful life of fixed assets Depreciation of tangible fixed assets

is related to the used of assets, which is the gradual decrease in value and use value due to participation in the production and business process, due to natural depreciated or due to scientific technology progress

Depreciation of assets has a direct impact on the financial statements, specifically on the taxable income of the business However, depreciation is not an actual expense in cash, but is only deducted from the books, so it does not affect the actual cash flow of the business much other than the tax payable Depreciation of tangible fixed assets is a cost element in the product cost of the enterprise, so the planning of tangible fixed asset depreciation is included in the content of the financial planning of the enterprise and is extremely important for the enterprise business However, tangible fixed assets are only allowed to be revalued at their original costs once, so when changing the depreciation method, the unit accountant must make a specific presentation in the notes to the financial statements

Of the three depreciation methods mentioned above, the depreciation method following a straight line is the method most chosen by many businesses and applied

in practice This method calculated depreciation according to the stability of each year into the enterprise's production and business expenses of fixed assets engaged

in business activities 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 rapidly innovate technology As for the remaining two methods, due to little application, I will not go into details in this thesis

The formula for determining straight-line depreciation is as follows:

 Determine the average annual rate of depreciation:

Average annual depreciation

Original cost of fixed assets Depreciation time

 Determine the average monthly depreciation calculation:

Average monthly depreciation = Average annual depreciation rate

the month incurred

In there:

Number of days used in the month = Total days of the month incurred – Start date

of use + 1

1.1.3 Risks of frauds and errors relating to tangible fixed assets

Tangible fixed assets and tangible fixed asset depreciation play a very important role in the production and business process of the enterprise Therefore, the accounting of tangible fixed assets as well as the depreciation should be properly recorded and calculated accurately Moreover, for manufacturing enterprises, the tangible fixed asset item on the balance sheet usually accounts for a large proportion, so an error in this item can have a material impact on the financial statements of the enterprise Therefore, tangible fixed asset audits as well as tangible fixed asset depreciation plays an important role in financial statement audits

For tangible fixed assets, the assertions that are often violated include: completeness, existence, rights and obligations, cut off, accuracy (value) and presentation Therefore, the common risks and errors for tangible fixed asset audits can be mentioned as follows:

 No ending tangible fixed assets count;

 The minutes of inventory and classification of assets in the accounting books cannot be compared with each other;

 There is no catalog, book or card to track fixed assets;

 Failing to keep track of properties that are pledged or mortgaged;

 Fixed assets have not fully implemented the transfer of ownership to the Company;

 Noting the property on the wrong date of the handover record;

 Accounting for increase in fixed assets when there are none sufficient supporting invoices and documents;

 Misstatement of the original costs of fixed assets: For example, capitalizing interest expenses, installation costs, testing costs, repair costs before putting them into use ;

 Incorrect classification and grouping of assets;

 Accounting for reductions of tangible fixed assets when there is no decision

on disposal;

 Using an inappropriate depreciation method;

 Depreciation allocation for parts is incorrect; and

 For construction-in-progress account: Not keeping track of details, not having enough invoices and documents, completed and put into use but still not yet recorded in the construction-in-progress account and not depreciated

1.1.4 Internal control for tangible fixed assets

Internal controls are methods and policies designed to prevent fraud, reduce errors, promote operational efficiency, and to achieve compliance with established policies and procedures

At companies, the transactions related to the acquisition and disposal of tangible fixed assets may be misrecorded This leads to incorrect balances of

tangible fixed assets on the balance sheet, distorting operating ratios related to assets, or miscalculation of tangible fixed asset depreciation Therefore, the accounting department should keep the tangible fixed asset register as a subsidiary book detailing each fixed asset item The basic information of a tangible fixed asset register is the original costs of each asset and the added or changed value, and the accumulated depreciation of that asset Other information includes the model number, location, purchase/disposal date, supplier or manufacturer The balance on the tangible fixed asset register must be periodically reconciled with the net value of the fixed asset accounts on the ledger

At least annually, the company should conduct an inventory count of all fixed assets, and reconcile the actual inventory with the fixed asset register The inventory count and reconciliation should also find any unused, damaged, or fully depreciated assets that still continue to be depreciated Copies of the tangible fixed asset register should be sent to the administration and the department where the tangible fixed assets are located as this helps the department in safeguarding these assets on a daily basis In addition, there should be a system to update the tangible fixed asset register in time through the coordination between these departments and the accounting department

1.2 The process of auditing fixed assets item in financial statement audits

Tangible fixed assets are an important item, accounting for a high proportion

of total assets of an enterprise Transactions related to tangible fixed assets are often

of great value, so the audit of tangible fixed assets is always a complicated and important job in financial statement audits Therefore, whether a systems-based approach or a risk-based approach, the auditor should exercise with cautious when performing an audit of this item The process of auditing tangible fixed assets in financial statement audits at auditing companies can be seen through 03 stages including: Audit planning, Audit fieldwork and Audit finalization and reporting Below, I will present in detail about these three stages as well as the objectives and ground bases for auditing tangible fixed assets at the enterprise

1.2.1 Objectives and bases for auditing tangible fixed assets

Tangible fixed assets always account for a large proportion of the total asset value of the unit and depend on each business line and type of business of the unit Therefore, in all cases, the tangible fixed assets reflect the condition of equipment, facilities, technical facilities of the enterprise This makes the tangible fixed assets item an important item when performing a financial statement audit

On the other hand, because the cost of forming tangible fixed assets is very high and the ability to turn capital is slow, the audit of the tangible fixed asset item will help the auditor to assess the economics and effectiveness of the investment in tangible fixed assets, thereby providing investment orientation and sources used to invest in tangible fixed assets in the most effective way

The audit of the tangible fixed asset item will contribute to detecting errors in determining the costs constituting the original cost of tangible fixed assets, repair costs, and asset depreciation costs These costing errors often lead to material mistakes in the financial statements

For example, the allocates depreciation of tangible fixed assets into expenses

is often higher (or lower) than actual, thereby affecting the cost and profit targets of the enterprise Failure to distinguish between the types of repair costs recorded as an increase in the original cost of fixed assets from the repair costs included in the production and business expenses during the period also leads to discrepancies in the fixed assets and business production costs

In summary, auditing of tangible fixed assets is an important item in financial statement audits Thereby helping the auditor to obtain reasonable and sufficient evidence to form a basis for his opinion on whether the presentation of the financial statement is true and fair in all material respects, and at the same time helps to for auditors to assess the reasonableness of the enterprise in business investment, to advise the enterprise to build a business plan in the most scientific and effective

way

1.2.2 The audit process

1.2.2.1 Audit planning

Regarding internal control assessment: It is very important to evaluate the client's internal control to draw conclusions about the effectiveness of the internal control which supportive for the process of assessing control risk, associated with each item and cycle

Information collected about a client not only helps the auditor make an initial assessment of control risk, but can also help the auditor to make a preliminary identification of overarching risks that could affect the entire audit process and risks are identified for each specific item or cycle

This work is often performed by team leaders or audit seniors, as this requires high professional judgment and understanding of the client On the basis of the results, the audit team leader draws the issues that need attention and forms a detailed audit plan suitable for each client

However, the research and collection of background information and information about the audit client's legal obligations is usually carried out at a brief level, mainly through interviews, observations and document collection from within the company The evaluation of the internal control for the fixed asset item is usually done through interviews or the use of questionnaires This saves audit time but the quality is not high and sometimes inconsistent

Regarding the setting of materiality: This is the final step in the overall audit planning stage performed by the audit team leaders, the audit director is the final reviewer Indicators commonly used in determining materiality are accounting profit before tax, revenue or total assets

Depending on the audit, the auditor will select the corresponding criteria to determine the appropriate level of materiality However, the determination of materiality is often based on the experience, or subjective judgment of the auditor, which sometimes leads to different materiality results between auditors that affect the audit conclusion

Regarding detailed audit planning for fixed assets: There are currently 06 potential errors that are always identified as likely to occur in any audit These are

the potential errors related to transactions (completeness, existence, recordability, cut off) and errors related to the preparation of financial statements (accuracy, presentation)

Detailed audit planning is always associated with the purpose of detecting these potential misstatements Specifically, with the audit cycle of fixed assets, checking the accuracy of prices and presentation of transactions related to fixed assets, ensuring that the recognition is calculated accurately in order not to be confused

Or check the existence and completeness of fixed assets to ensure that there is

no difference between the actual fixed assets and the recorded fixed assets in the books of the entity Usually, fixed assets tend to be recognized higher than they actually are, and the existence of the fixed asset item is likely to be affected Therefore, the auditor will focus procedures on checking the existence of fixed assets

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 procedures suitable to reality, not being forced to perform all the procedures in the detailed audit program

At the same time, the auditor may also perform alternative audit procedures if the original procedures in the audit program are not practicable For example, the procedure for auditing the opening balance could be replaced by an audit of the ending and arising balances in the respective period

1.2.2.2 Audit fieldwork

Currently, auditing firms often encourage auditors to use analytical procedures rather than detailed test procedures For the fixed asset item, horizontal analytical procedures are applied by comparing the value of the fixed assets (cost, accumulated depreciation, carrying amount) between this period and the previous period in order to develop abnormal fluctuations

At the same time, the auditor also applies vertical analysis procedures such as comparing the rate of return on total fixed assets, or the original cost of fixed assets

on total assets between periods When making comparisons, the auditor needs to

understand and clarify the impact of the factors that cause natural fluctuations on fixed assets (also known as reasonable fluctuations) and indicate doubts about possible errors

In this stage, the most important thing is that the auditor chooses an analytical model to build and evaluate fixed assets There are many models that help auditors assess the truthfulness and reasonableness of fixed asset items, but depending on each case and each specific client, the auditor can flexibly apply the model that appropriate analysis

When building and developing the model, the auditor will combine financial and operating variables to make predictions about financial and operating metrics Based on the specific purpose of applying analytical procedures and data information, the auditor can build a model

The use of models is for the purpose of predicting year-end balances on fixed asset accounts or for predicting changes from the previous year Depending on the type of business, as well as the target audience, each model will be selected to be the most optimal

For example, for a new client, having audited for the first time, there are no reliable data like the previous year's audited data, so the auditor chooses an estimation model based on the business plan, business plan purchases of fixed assets during the year and the rate of change of the entity's figures

For annual clients, the application of the fixed asset estimation model is based

on methods such as: Consecutive inventory method, Renuka Mahadevan and Noriyoshi Oguchi approach Auditing firms also need to develop the model in the direction of data detailing and can be detailed into many smaller models to increase the accuracy of the predictions

When performing fixed asset analysis procedures, analytical techniques based

on industry averages are rarely used This fact exists in most of the auditing firms operating in the Vietnamese market If the current year is the year of the first audit, the auditor may use industry averages as a basis for comparison

Comparing a client's fixed assets to total assets ratio with industry averages provides the auditor with an overview of the client's business and the reasonableness of the client's fixed assets

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

to total client assets approximates the industry average If the ratio of fixed assets to total client assets is much higher or much lower than industry averages, unless reasonable explanation is required, the information will be deemed fictitious

The explanation for such unusual fluctuations can be that the client has an industry advantage or an industry disadvantage If a reasonable explanation for such fluctuations cannot be obtained, the auditor should consider the hypothesis that fixed assets have been overstated or understated in order to take advantage of incentives The auditor then designs audit procedures to test this hypothesis

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

In some cases, auditors tend to find explanations for discrepancies in the accounting department rather than in another department, which is more knowledgeable and objective than the accounting department After being explained, the auditor does not take action to verify those explanations but considers the difference to have been satisfactorily explained

1.2.2.3 Audit finalization and reporting

After the audit is over, the audit team seniors, the audit managers and the leaders of the auditing company will summarize the results, revaluate errors, prepare and issue the audit report at the same time review and revaluate the quality

of the audit performed

The review of the working papers of the auditors 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

CONCLUSION OF CHAPTER I

The content of Chapter 1 is divided into two specific parts as follows:

Part 1, I focus on the theory of fixed assets to give the characteristics of the item of fixed assets in the financial statement Through that, I give the accounts of some typical arising accounting cases related to fixed assets in a financial year In addition, I also rely on Circular 200 and Circular 45 to provide a way to determine the original cost and nature of fixed assets

Part 2, I go into the process of auditing financial statement of fixed assets in general for businesses This is the premise to go into detailed analysis of this process at Ernst & Young Vietnam Company Limited with specific illustrative examples in chapter 2

CHAPTER II:

THE PRACTICE OF AUDITING TANGIBLE FIXED ASSETS IN FINANCIAL STATEMENTS AUDITS PERFORMED BY ERNST & YOUNG

VIETNAM COMPANY LIMITED

During the internship period prescribed by the academy, I had the opportunity

to try out at the entrance examinations organized by the Big Four organisations Big Four is the common name of four leading auditing firms in the world in terms of size, revenue and history, including: Pricewaterhouse Cooper (Pwc), Ernst & Young (EY), Deloitte and KPMG Each company has its own strength, a unique charm and the recruitment exam at each company also has its own variety colour of the nature

of the company I myself had the opportunity to practice and work for three months

at EY and I had the first real career experience associated with my knowledge of being trained at the Academy It was this internship opportunity that motivated me

to do my thesis Below, I will give basic information about Ernst & Young Vietnam Company Limited as well as auditing tangible fixed assets in financial statement audits

2.1 Overview of Ernst & Young Vietnam Company Limited

Ernst & Young (read in short as EY) is a multinational professional services firm based in London, United Kingdom EY is one of the largest professional services firms in the world Along with Deloitte, KPMG and PwC, EY is considered one of the Big Four - a group of four leading auditing firms in the world EY has recently shifted its business focus to consulting Specifically, EY has increased its presence in strategic consulting and entered into direct competition with traditional firms in this field, known as the "Big Three", namely Bain, McKinsey and BCG Through a series of acquisitions and market shift, EY has gradually expanded its market share in areas including operations consulting, strategy consulting, human resources consulting, financial consulting and technology consulting

EY operates under the model of a network of member companies, with each member company being a separate legal entity in each country Currently, EY has 270,000 employees in more than 700 offices in 150 countries around the world, providing assurance (including financial audit), tax and consulting services

2.1.1 The process of formation and development

EY is the result of a series of mergers of predecessor organizations The oldest predecessor organization was founded in 1849 in England as Harding & Pullein That year, Frederick Whinney joined the company He became a senior officer in 1859, the company was renamed Whinney Smith & Whinney in 1894 In

1903, the Ernst & Ernst company was founded in Cleveland by Alwin C Ernst and his brother Theodore and in 1906, Arthur Young & Co was founded by Arthur Young in Chicago

In 1979, Ernst & Ernst joined with Whinney Smith & Whinney to form Ernst

& Whinney, the fourth largest accounting firm in the world at the time In the same year, Arthur Young's European offices merged with many large European companies which later became a member company of Arthur Young International

In 1989, the 4th largest company Ernst & Whinney merged with the 5th largest company Arthur Young, to create Ernst & Young into what it is today Also

in this year, EY set up the first representative office in Vietnam However, on November 3rd, 1992, Ernst & Young Vietnam Company was officially established under the investment license No 448/GP issued by the Ministry of Planning and Investment, becoming the first organization providing consulting and auditing with 100% foreign investment capital in Vietnam In 2013, Ernst & Young Company changed its trade name to EY, and the company's logo was also changed in design from black and white to yellow-gray to create a very unique feature

2.1.2 Functions, duties and business lines

The range of services provided by EY is diverse and highly competitive:

 Auditing Services (Core Assurance)

 Tax Services (Tax)

 Financial and risk advisory services (Advisory)

 Transfer pricing consulting services, transactions (Transactions)

 Other special services: special services for Japanese businesses, family businesses… (Specialty Services)

In addition, Ernst & Young Vietnam Company Limited is a member of the Asia-Pacific region, Southeast Asia sub-region (ASEAN) of EY Global Within the

EY Global, the ASEAN Sub-Region Governing Department is the ultimate decision-making department, responsible for the accountability and implementation

of governance strategies including quality control and risk management, market development, and ensure developing goals and high-quality human resources for local companies

EY Vietnam creates prestige and success in the market by providing high quality professional audit services with independent and objective way of working., always keep an attitude of professional skepticism and maximally comply with the professional ethics standards issued by the Ministry of Finance In addition, EY has comprehensively designed and implemented global audit quality control policies and practices These policies and practices will meet all of the requirements of the ISQC1 International Standards and Quality Control as published by the International Auditing and Assurance Standards Board (IAASB) and the Vietnam Standard Quality Control – VSQC1 to apply for specific business needs

Every year, EY's Global Audit Quality Review (Global AQR) program is implemented and reviewed for the audit quality control of the company is operating effectively and in line with the economic situation in the host country These results are analyzed and evaluated internally to form the basis for continual improvement

of audit quality, in line with the highest professional standards

2.1.3 The management structure of the company

At EY Vietnam, the company's management is divided into departments with equivalent powers, rights and responsibilities Regardless of working in any service branch of the company, the career progression of a company employee goes through the main ranks according to the following diagram:

Diagram 2.1 Main auditor ranks at Ernst & Young Vietnam Company Limited

Source: Ernst & Young Vietnam Co., Ltd

Where:

- Intern: Group of trainees

- Staff: Audit/ consultant assistant group

- Senior: Auditor/ consultant team leader

- Manager: Audit/consultant team management person

- Senior Manager: Higher rank Audit/consultant management person

- Partner: Audit/consultant Director or Deputy Director

This career advancement path gives employees a comfortable feeling and a clear understanding of their potential for career development And below is a detailed description of the departments included in Ernst & Young Vietnam Co., Ltd

Council members: is the supreme department that decides all activities of the

company, which has the ability to decide the direction of development, investment forms, investment projects of the company, through the annual financial statement, the plan to deal with the losses of the company, decided the management structure for the company

Control board: has the task of controlling the entire operation of the company to

detect errors and weaknesses in the organization's structure and operation

Diagram 2.2 Management structure of Ernst & Young Vietnam

Source: Ernst & Young Vietnam Co., Ltd

Deputy General Director

The Deputy General Director is the person who helps the General Director in managing the division and delegation of the Director from time to time, is responsible to the General Director for the tasks that have been delegated and authorized Each Deputy General Director is assigned to be responsible for a certain service segment and is responsible for maintaining and developing the business of

the majority of the service array that is assigned to them At the same time, they are also in charge of client relations to ensure the revenue growth plan set by the General Director for each period

The Deputy Director also has the right to representative for the General Director in dealing with clients and stakeholders and responsible for that

Currently, the human resource structure has also changed, the current Deputy Director of the department also has the same change in their job allocation, the workload is gradually transferred to more individuals to ensure the quality of the work

Branch Director

The Branch Director is the person who supports the General Director in the organization, administers and distributes the activities of that branch to ensure the unification of the entire development goal The Branch Director is the person who represent the General Director in building, developing and keeping in contact with clients and functional agencies, and relevant parties in the local area where the branch is located They have the responsibility to report directly to the General Director about the issues in the company, which they themselves are responsible for periodically, monthly or extraordinary requested from leaders

Technical Department

The technical department at Ernst & Vietnam consists of an audit room, a financial advisory room, a tax advisory room and a business risk advisory room Each department has its own responsibility to serve the business activities of the

enterprise

Audit: Ernst & Vietnam has 2 major audit lines (FSO and Core Assurance)

that specialize in each segment and each field to specialize in the specialization, quality control and audit effectiveness, including: Banking, Financial Services, Non-banking business and insurance services (can be divided into 3 large segments such as Japanese professional insurance, foreign-invested industry from Japan, and other professional businesses) Every year, the largest source of revenue comes from audit activities of enterprises

Financial advisory: This department is responsible for providing financial

consulting services, management solutions, consulting on internal control, accounting consulting and various types of financial services

Tax advisory: Is a choice for clients in tax planning and finalization, giving

suggestions on whether the business complies with the current tax laws of the host country

Training: The training department is responsible for creating training plans,

implementing training programs in accordance with the development goals of the majority In addition, the department is also responsible for advising the Board of Directors on the proposal to invite employees to attend external courses so that all staff members have good professional quality Veteran employees with many years

of experience will be selected to enter the training room to conduct training sessions for new employees and interns

Finance - accounting department: The Finance - Accounting Department is

responsible for ensuring information on the financial and accounting situation of the Company, is the General department with the greatest influence on the Board of Directors in the planning and implementation of resource activities and choose to

carry out that plan

The role of the finance-accounting department is not only at collecting, processing and inspecting, controlling the implementation of regulations and policies on financial management, using capital, assets, and supplies, but also preserve and develop the Company's capital within the scope of security as well as

to perform payments and settlement of arising transactions

In addition, this room is also responsible for the financial information of the company, report directly to the Board of Directors about the financial and accounting situation of the company (including a representative office in Hanoi and others branch office)

Human Resources Department: Together with the training room, the two

departments will support each other in planning training and recruiting employees, setting employee norms and salary unit prices; monitor and supervise domestic law

enforcement, law enforcement, and enforcement of discipline; advising the Board of Directors on building a business management organization of staffing

Client and Market Development Department: Responsible for the market

segment and clients as well as for the management of company image, client care, information disclosure issues with the relevant margins and stakeholders

Information technology room: Every EY office needs an IT department

because they all use audit software designed by EY itself This department will assist in dealing with problems of technology and communication systems internally, with the Head office and with the outside

2.1.4 Financial statement audits performed by Ernst & Young Vietnam Company Limited

The general financial statement audit process performed by Ernst & Young Vietnam Company Limited can be summarized by the following diagram:

audit existing clients

Learn about the business

Assess the complexity of

the information systems

environment, the need for

expert advice

Reviews internal

control Risk identification

cheat and decide to

TE, SAD and threshold)

Identify material items that

need further explanation (if

to the end

Learn and evaluate the reporting process

Selecting control procedures

to test

Learn and evaluate client technology control systems

Combined Risks

Control test design

Design tests to check entries and fraud detection procedures

Design basic test

Design experiment general audit Prepare an Audit Strategy Summary (ASM)

Update test of control and test test of client's

IT control system from after the mid- year audit to the end

of the financial year

Perform basic test

Perform general audit procedures

Final financial statement review Make a summary review map (SRM)

Finalize the review and approval of the necessary documents

Issuance of audit report

Maintain audit records and working papers

Disposal or supplementation of the audit contract

Planning and

identifying risks

Assess risk and develop

Conclusion and report issue

Diagram 2.3 Auditing process at Ernst & Young Vietnam Co., Ltd

Source: Ernst & Young Vietnam Co., Ltd