Scope and limitation of the study The scope of the topic is the auditing process for fixed assets items, in financial statement audit, applied at Deloitte Vietnam company.. Study method
The needs of the study
The rapid and unprecedented development of society has led to increased complexity in business management systems, making them more challenging to control The agency problem remains a significant concern, as it poses risks to owners and investors regarding the accuracy of financial information provided by the Board of Directors (BOD).
Government policies aimed at promoting economic development have led to a rising capital market; however, business owners often exaggerate their companies' strengths, sometimes misleadingly As a result, the information released by these enterprises lacks credibility, causing investors to be wary and hindering the overall growth of the capital market.
Recognizing the critical need for transparency, independent audit services were established to verify the accuracy and fairness of financial statements (FS) prior to their public release By evaluating the data presented in the FS according to the Vietnamese Auditing Standards, auditors provide informed opinions based on the evidence collected This process empowers FS users to make informed and timely decisions.
In an audit, fixed assets is always considered carefully by the auditor for the following reasons:
• Fixed assets account for a large proportion in Assets presented in the BS, especially for manufacturing entity
• Fixed assets between entities have different characteristics, so the audit of fixed assets should be evaluated and considered differently between each type of enterprise
Depreciation expenses for fixed assets significantly impact their net book value, making accurate calculations essential Incorrectly determining depreciation can distort the balance sheet by misrepresenting the net book value of fixed assets and affect the income statement by inaccurately reflecting expenses This, in turn, can lead to errors in calculating the entity's operating revenue.
Given the inherent risks associated with fixed assets and their impact on the truth and fairness of financial statements, auditors prioritize the evaluation of fixed assets during audits This emphasis underscores the critical nature of fixed assets, leading to stringent audit procedures Therefore, the focus of this discussion is on the "Fixed Asset Audit at Deloitte Vietnam Co., Ltd." which reflects the significance and expertise involved in the fixed asset audit process.
Study objectives
Analyse the audit procedures of fixed asset and fixed asset depreciation at Deloitte Vietnam Company Limited
Describe the application of fixed assets audit procedures of Deloitte Viet Nam at ABC company in reality
Recommend suggestions for audit of fixed assets at Deloitte Vietnam Company Limited.
Study subject
The subject of the study is the audit process of fixed assets at Deloitte Vietnam.
Scope and limitation of the study
This article focuses on the auditing process for fixed asset items within financial statement audits at Deloitte Vietnam The study is limited to a specific client whose fiscal year concluded on December 31, 2020.
Study method
Document research involves utilizing diverse resources, including textbooks, Vietnamese Accounting Standards, Vietnamese Auditing Standards, the Vietnamese Accounting System, and relevant current circulars Additionally, it incorporates the Auditing Model Program provided by the Vietnam Association of Certified Public Accountants (VACPA).
Explore the fixed asset audit procedures utilized by Deloitte Vietnam by examining relevant audit documents and working papers Additionally, focus on specific client cases to gain insights into the audit process and its application in real-world scenarios.
Inquire auditors at Deloitte company.
THEORETICAL BACKGROUND OF FIXED ASSETS AND FIXED
Fixed assets
Fixed assets are valuable resources with a long useful life, often spanning multiple accounting periods These assets play a crucial role in production and business operations, representing a significant portion of a company's total assets as reflected in financial statements.
Fixed assets serve as essential facilities for an entity, showcasing its production capacity and the integration of science and technology into its operations These assets play a crucial role in fostering sustainable growth and enhancing labor productivity, ultimately leading to reduced costs and more affordable products and services.
Fixed assets are essential for production and business operations, distinct from commercial assets Over time, these assets experience depreciation, leading to a gradual shift in their value into operating costs, which can be recouped through the sale of goods and services.
To optimize the utilization of fixed assets, enterprises must prioritize maintenance and repair alongside rational capacity usage for production development The treatment of repair costs varies based on the nature of the repairs and the type of fixed asset involved Fixed assets can be categorized according to several common criteria.
• By form: Fixed assets are classified into tangible and intangible fixed assets
• By ownership: Fixed assets are classified into existing fixed assets and outsourced fixed assets lease
Fixed assets can be categorized based on their source of creation, including those financed through equity investment, loan capital, capital contributions, and assets that are sponsored or donated.
Fixed assets are categorized into three main types: tangible fixed assets, intangible fixed assets, and financial lease fixed assets This classification is widely recognized and is reflected in the trial balance, making it the standard method for organizing fixed assets.
Tangible fixed assets, as defined by VAS 03, are physical assets owned by enterprises that play a crucial role in various production processes and business activities To qualify as tangible fixed assets, these assets must meet four specific recognition criteria.
1 It is certain that future economic benefits will be obtained from the use of that asset;
2 The cost of an asset must be reliably determined;
3 The estimated usage time is over 1 year;
4 Having sufficient value criteria according to current regulations
Intangible fixed assets, as defined by VAS 04, are non-physical assets that can be valued and are utilized by enterprises for production, business activities, service provision, or leasing to other entities To qualify as intangible fixed assets, these assets must meet four specific recognition criteria.
1 It is certain that future economic benefits will be obtained from the use of that asset;
2 The cost of an asset must be reliably determined;
3 The estimated usage time is over 1 year;
4 Having the appropriate value according to the current regulations (valued at VND 30 million or more)
Under VAS 06 - Lease of Assets, finance leases refer to fixed assets acquired through financial leasing arrangements In a finance lease, the lessor transfers most risks and benefits of property ownership to the lessee, who may obtain ownership of the asset at the end of the lease term.
1.1.2 The characteristics of fixed assets
Fixed assets require a significant initial investment and typically have a payback period exceeding one year Throughout their operational lifespan, these assets maintain their physical form while experiencing gradual wear and tear This depreciation is systematically recognized as an operating expense over time, manifested as depreciation expense on fixed assets.
Fixed assets are valuable items that typically represent a substantial portion of total assets in financial statements, making their audit crucial in the overall financial auditing process Although the quantity of fixed assets is generally limited and transactions involving their increase or decrease are infrequent, the likelihood of errors is relatively low As a result, the audit of fixed assets tends to be a time-efficient process.
1.1.3 Principle of recognition and evaluation fixed assets
The historical costs of tangible fixed assets acquired through purchase encompass the purchase price (excluding commercial discounts) and all expenses directly associated with preparing the asset for use This includes initial shipping and handling costs, installation and commissioning expenses, fees for experts, and any other directly related expenditures.
The historical cost of an intangible asset encompasses the purchase price (excluding commercial discounts), non-refundable taxes, and expenses directly related to preparing the asset for intended use When land use rights are acquired alongside buildings and structures on the property, the value of these rights must be separately assessed and classified as intangible fixed assets.
Historical cost of fixed assets formed from CIP: "Is the settlement value approved by a competent agency or person in accordance with the law on construction investment."
Accumulated depreciation
Depreciation of fixed assets, as outlined in paragraph 5 of VAS 03 and paragraph 6 of VAS 04, refers to the systematic allocation of the depreciated value of both tangible and intangible fixed assets over their useful life.
Value must be depreciated: Cost recorded on the financial statements, minus (-) estimate the liquidation value of the asset
Enterprises can choose one of the following depreciation methods:
1.2.2 The characteristics of fixed asset depreciation
In respect of depreciation expenses, unlike other normal expenses, the audit has two separate characteristics as follows:
Depreciated expenses represent an accounting estimate rather than a direct expense incurred The depreciation rate is influenced by both the initial expense and the duration of depreciation, where historical cost serves as an objective factor and the depreciation period relies on the entity's estimation Consequently, auditing depreciated expenses focuses more on accounting estimates than actual expenditures, making it challenging to rely solely on documentation for precise calculations.
Depreciation is a systematic allocation of historical costs, and its reasonableness is influenced by the chosen depreciation method Consequently, auditing depreciated expenses involves examining the application of various accounting methods.
1.2.4 Principles of recognition and evaluation fixed assets
Under VAS 03, the depreciable value of tangible fixed assets is systematically allocated throughout their useful life, aligning the depreciation method with the economic benefits these assets provide to the business Each period's depreciation is recorded as part of production and business costs unless it is incorporated into the value of other assets For instance, depreciation of tangible fixed assets used during the implementation stage contributes to the historical cost of an intangible fixed asset, in accordance with intangible asset standards, or it may be reflected as amortization expense for intangible assets involved in self-building or constructing other assets.
The useful life of tangible fixed assets is primarily determined by an enterprise's estimated utilization; however, asset management policies may lead to a shorter estimated useful life than the actual lifespan Consequently, accurately estimating the useful life of tangible fixed assets should consider the enterprise's experience with similar assets to ensure realistic assessments.
Auditing the fixed assets
The objective of a fixed asset audit is to determine:
Existence E The fixed assets shown on the financial statements are existing
Completeness C Fixed assets under ownership / control of the entity have been fully recorded
Right and obligation R&O Fixed assets shown in financial statements belong to the ownership and control of the entity
Valuation and allocation V The fixed assets shown in the financial statements are priced and recognized in accordance with current accounting standards
Presentation and Disclosure P&D The fixed assets presented on the
Notes are real, belong to the units, complete, easy to understand and correctly classified
1.3.2 Common errors occur during auditing fixed assets
The entity does not conduct a physical count at the end of the period, which involves weighing, measuring, and counting fixed assets to assess their quality and value for reconciliation with accounting records Without this procedure, the client cannot confirm the existence of their assets or identify any activities that may diminish their value, such as theft or damage Consequently, this oversight impacts the assertions of existence and completeness in financial reporting.
The absence of a fixed asset tracking list, book, or card leads to discrepancies during physical counts, making it challenging for clients to accurately match physical assets with those recorded in the books This oversight can significantly impact the assertions of existence, completeness, valuation, and classification of assets.
The inconsistency in the classification of fixed assets between the Fixed Assets Count Sheet and the Accounting Books hinders reconciliation efforts, leading to potential errors in valuation and classification assertions.
Capitalizing expenses, such as repair and maintenance costs, incorrectly increases the historical cost of fixed assets, leading to potential valuation assertion issues.
The rising historical cost of fixed assets encompasses expenses that should not be included in historical cost, as well as those that ought to have been recorded in historical cost but are instead classified as period expenses This misclassification can significantly impact valuation assertions.
• Not fully recording fixed assets that have been disposal This error will affect valuation assertions
• Accounting for reduction of fixed assets when there is no liquidation decision This error will affect existence and completeness assertions
• Do not track the pledged or mortgaged assets This error will affect existence and completeness assertions
Fixed assets may be fully depreciated yet continue to incur depreciation, while finance lease fixed assets should not be depreciated In contrast, operating lease fixed assets require depreciation Errors such as incorrect or improper depreciation during the accounting period, inaccurate estimates of useful life, and inconsistent depreciation methods across years can significantly impact valuation assertions.
1.3.3 Control procedure for fixed assets
Besides the common risks mentioned above, auditors need to note that control procedures for fixed assets to evaluate other potential risks in the process of auditing
• Planing: Investment, procurement, repair, liquidation
- Review of investment needs and capacity
- Review and approval of specific structure of fixed assets
- Review and approval of specific cost estimates of investments
- Acceptance and final settlement of the project
- Review and approve the liquidation of fixed assets during the year
- Track the depreciation of each asset
- Check liquidation records and ledger
- Assign duties between recorders and fixed assets managers in reality
• Check detailed records of fixed assets:
- Detailed card of fixed assets
• Propose policies to differentiate between investment expenses and expenses of returns…
1.3.4 Audit procedure for auditing the fixed assets
In the financial statement auditing process, gaining a thorough understanding of the client is essential to ensure the quality of information This understanding aids auditors in assessing initial control risks and identifying potential risks associated with specific items, thereby establishing a strong foundation for the audit process and informing future opinions.
Typically, a manager or senior professional conducts this work due to the necessity for advanced judgment and a deep understanding of the client Based on the findings, the audit team leader identifies key issues that require attention and develops a tailored audit plan for each client.
❖ Understand the internal control system:
The auditor comprehensively evaluates the Internal Audit System by examining its key components: the control environment, risk assessment, information and communication, control activities, and monitoring activities Following this analysis, the auditor compiles a profile of the gathered information to demonstrate their understanding of the internal control system This documentation is typically presented through reports, questionnaires related to internal controls, or flowcharts.
❖ Preliminary assessment of control risk
Control risk assessment involves evaluating the effectiveness of an internal control system in preventing and detecting significant errors Typically assessed qualitatively, control risk is categorized into three levels: high, medium, and low An auditor can only evaluate control risks for a specific assertion at a level below the maximum when they determine that the relevant control procedures are both effectively designed and implemented This evaluation allows the auditor to limit the scope of basic tests performed on the relevant items.
Based on the results of the preliminary control risk assessment, the auditor will make a decision whether to design and perform control tests:
The final work of the general audit planning stage is conducted by the audit team leader, with the auditor's director serving as the final reviewer Common criteria for determining performance materiality (PM) include profit before tax, revenue, and total assets.
1.3.4.2 Tests of control Tests of control: An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting material misstatements at the assertion level Results of this test will be evidence for the auditor to keep or extend substantive tests
The common tests of controls on fixed assets that we perform usually cover three aspects, including fixed assets tagging, segregation of duties, and procurement procedures of the assets
The client implements an effective control procedure by assigning a unique identifying tag to each fixed asset, including office furniture and equipment This tagging system enables the client to monitor all tagged items accurately and facilitates adjustments to the balance sheet for acquisitions and disposals Additionally, it plays a crucial role in preventing the misuse of assets for personal gain.
The audit team conducts control tests by verifying that the fixed assets list aligns with the corresponding tag numbers on the assets themselves This process assesses the client's management of its assets, ensuring efficiency and effectiveness When this control procedure functions properly, it significantly increases the likelihood that transactions are accurately recorded, allowing for timely identification and correction of any errors.
Segregation of Duties over Assets
Segregation of duties is a crucial practice that ensures no single individual is responsible for all aspects of fixed asset transactions, such as recording, authorization, purchasing, and payment This division of responsibilities is vital in preventing potential fraud related to fixed assets, thereby enhancing overall security and accountability within the organization.
Introduction overview of Deloitte Viet Nam
Deloitte Touch Tohmasu is a leading global provider of professional services and ranks among the largest audit firms in the world, known as the 'Big Four', alongside PriceWaterhouseCoopers, Ernst & Young, and KPMG.
Founded in 1845, Deloitte Tohmatsu emerged from the merger of three audit firms led by esteemed auditors William Welch Deloitte, George A Touch, and Nobuzo Tohmasu Over its 175-year history, Deloitte has established a strong brand known for its high-quality auditing, assurance, tax, and financial advisory services With a presence in over 150 countries and a workforce of more than 334,800 employees, Deloitte offers professional resources designed to help clients succeed.
In Asia and Australia (Asia Pacific Network), with more than 75,700 employees and practicing partners serving the needs of managing all types of businesses including countries and regions In which:
- Deloitte in Asia Pacific: includes countries not shown on the map: Kazakhstan, Pakistan, East Timor, Uzbekistan
- Deloitte Asia Pacific (including Australia): China (including Mongolia), Japan, Taiwan, Australia, New Zealand and Southeast Asia
In Southeast Asia (Deloitte In Southeast Asia), Deloitte Touch Tohmasu has 11 member companies operating in countries including: Guam, Brunei, Indonesia, Malaysia, Singapore, Philippines, Myanmar, Cambodia, Laos, Thailand and Vietnam
In May 2007, Deloitte Vietnam officially became a full member of Deloitte Touche Tohmatsu, one of the world's top four auditing firms Building on the foundation laid by the Vietnam Auditing Company (VACO), which has operated for over 16 years since its establishment in 1991, Deloitte Vietnam continues to enhance and expand its legacy and achievements.
On May 13, 1991, the Minister of Finance issued Decision No 165TC/QD/TCCB, which outlined regulations for companies However, in response to market economy demands, companies must adapt their operational structures to compete effectively in foreign project bidding Consequently, the company transitioned to a one-member limited liability entity under Decision No 1927/QD-BTC dated June.
30 th ,2003 by Minister of Finance Certificate of business registration for limited company
No 0104000112 dated January 19, 2004 was issued by Hanoi Department of Planning and Investment
VACO stands out as Vietnam's premier and largest auditing firm, offering a comprehensive range of services including audit, accounting, financial advisory, and tax advisory The company serves a diverse clientele, encompassing joint ventures, fully foreign-invested enterprises, state-owned enterprises, and various international projects.
In response to the growing trend of international integration and intense competition, VACO's management team strategically formed a joint venture with Deloitte Touche Tohmatsu, one of the world's top four auditing firms, in 1992.
In April 1994, the VACO-DTT joint venture was established, marking a significant milestone in Vietnam's independent audit industry On October 1, 1997, VACO, represented by the International Service Department (ISD), became an official member of Deloitte Touche Tohmatsu, serving as its legal representative in Vietnam This partnership combined the extensive experience of a reputable global accounting firm with VACO's deep understanding of the local business environment and laws, leading to notable success in the auditing sector On May 7, 2007, VACO transformed its ownership and became a full member of Deloitte Touche Tohmatsu, one of the world's largest auditing firms, and rebranded itself as Deloitte Vietnam, solidifying the presence of a leading global audit firm in the country.
Deloitte Vietnam has officially joined Deloitte Southeast Asia, which was established in June 2006 As the seventh member, Deloitte Vietnam plays a vital role in the strategy to enhance Deloitte's presence in the region, aiming to double its strength within the next five years With the inclusion of Vietnam, Deloitte Southeast Asia now comprises seven member countries—Singapore, Malaysia, Indonesia, Thailand, the Philippines, Guam, and Vietnam—boasting over 170 partners and nearly 4,300 professionals across more than 19 offices in the region.
2.1.2.1 Culture of Deloitte Viet Nam
Deloitte's core value, encapsulated in the slogan "Making an impact," reflects the firm's commitment to empowering employees to create meaningful change in the world through their work, emphasizing that even small contributions can lead to significant differences.
At Deloitte not only has a huge workload due to the specifics of the audit industry
Deloitte places significant emphasis on maintaining a healthy work-life balance for its employees To alleviate stress, the company organizes various recreational activities, including travel trips to destinations like Hoi An and events such as the Deloitte Football Cup, which showcases football talent from various departments, alongside the annual BIG4 Football Cup Additionally, during peak work seasons, Deloitte implements a D-hour program that allows employees to take an hour of rest after the afternoon shift, ensuring they remain refreshed for evening tasks.
Deloitte builds a brand based on 5 inseparable core values when interacting with members and with clients:
• Take care of each other
In addition to the main services of Audit & Assurance, Deloitte Vietnam also provides other professional services related to corporate business activities such as:
Deloitte offers audit services to a wide range of clients across diverse sectors, primarily serving corporations, companies, and organizations in five key categories: finance, energy and resources, commercial, banking and real estate, and manufacturing, as well as technology and communication.
2.1.3 The management apparatus in Deloitte Vietnam
Diagram 1 The management apparatus in Deloitte Vietnam o
Sources: Prospectus of Deloitte Vietnam Company Limited
Expatriate Expert Board of Directors
IT Department and risk management services
Financial consulting and solutions department
Functions of some main departments:
Chairman is the head of the company, has full authority to decide strategy of the company, is responsible for all matters related to the company
Perform professional assistance with corporate departments and audit contracts
The Board of Directors (BOD) establishes the overall business strategy and policies for recruitment and training The director serves as the company's primary representative, accountable to the Ministry of Finance and Deloitte Touche Tohmatsu for all company activities, with the authority to manage and make decisions regarding the company's operations and its representative offices The Vice Director oversees auditing techniques and scientific research within their departments, supports the CEO in various areas, and is responsible for tasks delegated by the Director.
Audit Department 1: audits foreign-invested enterprises and international projects Audit Department 2: audits FS for state enterprises
There is currently no clear distinction between the clients of the two auditing departments; however, these departments consistently collaborate to achieve the company's common goals.
IT department and risk management services: provide clients with software, assessing and managing risks, enhancing the reliability of the system as well as the production cycle in the enterprise
Financial Consulting and Solutions Department: implement financial consulting, management solutions, accounting consulting and project support services
The Tax Consulting Department specializes in developing tax strategies and effective business structures to optimize tax efficiency It conducts thorough reviews of corporate tax compliance and manages the planning, calculation, and declaration of both corporate and personal income taxes for foreigners working in Vietnam, as well as foreign contractor taxes The department also provides consulting and support to enterprises facing challenges during the tax finalization process with authorities, and organizes seminars and training sessions to enhance tax knowledge.
Accounting Department: obtains, processes and provides information about assets and economic and financial activities arising during the company's business operations to serve the management and public credit effects
Administrative department: manages personnel records, archives, handles communication procedures, administrative transactions, updates information, new documents…
Human resource management department: monitors, assigns labor, arranges conditions for employees to go on business
Application of audit of fixed assets audit at Deloitte Viet Nam in reality and
Deloitte's motto, "Making an impact," emphasizes the importance of understanding a client's industry and business environment Each sector encounters unique risks, and varying management risk tolerances shape distinct organizational cultures and operational methods Consequently, the trading activities among enterprises possess unique characteristics, highlighting the necessity for Deloitte Vietnam to initiate the auditing process by thoroughly understanding the client's business.
Understanding the audit process is crucial for companies to establish a cost-effective and time-efficient framework This foundational step enables organizations to identify and analyze potential risks associated with audits, facilitating the strategic allocation of resources for optimal outcomes.
Deloitte Vietnam categorizes its clients into two types: those who have undergone an audit in the previous year and those experiencing their first audit For returning clients, gaining an understanding of their business is straightforward, as Deloitte proactively engages with them to finalize the current year's engagement letter The firm utilizes and updates information from the previous year's audit, adapting it to reflect any changes over the year To assess these changes, the audit team gathers essential background information, including the client's organizational structure, modifications in business operations, and applicable accounting policies This comprehensive approach allows the audit team to develop a tailored audit plan for the current year.
For the first year audit client, after receiving the FS audit service request from the client, the audit team will collect information about the client as follows:
• Business activities and key activities;
• Basis for preparing financial statements;
In the pre-planning phase, experienced auditors gather crucial information to evaluate the feasibility of conducting an effective audit Once the engagement letter is signed, auditors must delve deeper into the collected data to formulate a suitable audit plan and identify potential risks throughout the audit process.
ABC Company is a client audited by Deloitte Vietnam last year Client information is summarized in the table 2
Table 2 Basic information of ABC Company
Company address High-tech Zone, District 9, City Thu Duc
Business field Company production of medical products
Business cycle 12 months (from 1/1 – to 31/12)
• Accounting regime of the business
ABC's financial statements are prepared in compliance with Vietnamese Accounting Standards and the corporate accounting regime, adhering to all legal requirements for financial reporting These statements are based on the accrual accounting method.
Applied accounting book form: General Journal
• Basic information related to fixed assets
Due to the unique characteristics of the medical device manufacturing industry, most fixed assets are substantial and anchored to the ground, significantly reducing the risk of theft Consequently, the primary materiality risk associated with fixed assets in this sector is completeness.
Fixed assets are fully labeled with numbers that match the accounting system, facilitating the control of their completeness during the annual physical count On the day of the fixed assets count, the audit team leader conducted interviews with the client to ensure that audit team members were effectively assigned to oversee the physical counting procedure.
• Understand accounting policies for fixed assets
Auditors gathered accounting policies for fixed assets through client interviews, revealing that ABC's state-owned enterprise clients adhere to Circular 45 They utilize the straight-line depreciation method for all fixed assets, with the depreciation timelines for asset groups detailed in Table 3.
Table 3 Accounting policies for fixed asset at ABC company
Types of fixed assets Minimum depreciation time (year)
Deloitte Vietnam's approach mirrors that of many auditing firms in the country, emphasizing proactive communication with clients from the previous year This strategy fosters strong connections and demonstrates Deloitte Vietnam's commitment to collaboration with its clients.
Deloitte Vietnam is committed to understanding the unique characteristics of first-year audit clients, aiming to identify their collaborative goals to ensure a smooth and effective audit process.
2.2.2 Understand internal control systems for fixed assets
The assessment of internal control systems is tailored to the client's business activities, ensuring a comprehensive understanding of the organization This evaluation enables auditors to effectively plan audits and identify risks of material misstatement in financial statements When a business's internal control systems are deemed effective, auditors can reduce audit time while still meeting their objectives.
The audit team comprehensively evaluates the client's internal control system by examining the five key components: control environment, risk assessment, information and communication, control activities, and monitoring activities This assessment is further enhanced through in-depth research on critical business cycles, particularly focusing on fixed assets and their depreciation.
In Vietnam, Deloitte typically evaluates the internal control systems of small and medium enterprises by integrating the assessment of fixed assets within the broader internal control framework This process involves client interviews to gain insights into the recording and depreciation of fixed assets Once the audit team comprehends the internal control mechanisms, they conduct design and implementation (D&I) testing to determine the effectiveness of these controls If the D&I results are favorable, the audit duration can be reduced while still meeting objectives by minimizing the need for substantive tests Conversely, ineffective D&I outcomes necessitate additional substantive testing procedures.
Last year, Deloitte Vietnam conducted an audit of ABC Company, focusing on the fixed assets and their depreciation cycle The findings were compiled using pre-designed questionnaires, supplemented by narrative descriptions, and in some instances, the audit team utilized flow charts for better clarity.
Through client interviews, the audit team obtained information about fixed asset management process as follows
✓ For process of fixed assets depreciation
To increase efficiency in fixed asset management, client perform separate tasks, segregation of duties is summarized in table 4
Table 4 Fixed asset segregation of duties at ABC company
Updating addition and disposal FA into accounting system
Reconciliation general ledger to fixed assets register
Ms X - Chief Accountant (from 1/1/2020- 21/11/2020) - Maternity leave
Ms Z - General Accountant Approve annually asset budget and capital expenditure appropriation requisition
Approve purchasing order Ms D - General Director
Review fixed assets register Ms X - Chief Accountant (from
✓ For understanding the flow of transactions
Name of the Significant Flow of
Principal Business Activities/Sub- process
Fixed Asset cycle Acquiring fixed assets
Disposal fixed assets Depreciating fixed assets Managing fixed assets
Base on the demands of department and projects for purchasing new FA, the demanding department or head of project will make Requisition Form and send to Ms
Ms D, along with department heads, will develop a fixed assets purchasing plan for each project, which will be submitted to the purchasing and accounting departments Given ABC's unique business needs, specific fixed assets must be imported or sourced from designated suppliers For these assets, Ms D will approve the requests and identify the suppliers, after which the purchasing department will proceed with the acquisition process.
REMARKS AND SUGGESTIONS TO THE APPLICATION OF FIXED
Remarks on the audit of fixed assets at Deloitte Viet Nam
Deloitte Vietnam, part of the global Deloitte network, ranks among the top four auditing and consulting firms in the country, consistently demonstrating strong annual revenue and high standings in both national and international rankings Proudly carrying forward the traditions of RSM International, Deloitte Vietnam fosters a professional and friendly work environment that encourages employees to enhance their knowledge and pursue personal development.
Deloitte Vietnam is guided by highly experienced auditors with extensive training from leading developed countries Several managers and partners hold the distinction of being among the first auditors to receive audit practice certification in Vietnam, ensuring a strong foundation of professional knowledge.
Deloitte Vietnam is completely capable of meeting all service requirements of customers
Young and passionate human resources are essential for fostering a dynamic work environment that promotes continuous learning At Deloitte Vietnam, we conduct regular training sessions to keep our team updated on the latest Vietnamese and international laws and regulations related to audit and accounting, as well as vital soft skills for effective customer communication These elements contribute significantly to the strength of Deloitte Vietnam.
❖ For audit process, specifically the auditing process of fixed assets at Deloitte Vietnam
The process is meticulously designed to ensure high reliability and low audit risk, with clearly defined responsibilities for each task Each stage of the audit is executed with attention to detail, maintaining a careful yet flexible approach throughout the implementation.
In the final stage of a fixed assets audit, senior audit team members participate in reviewing the auditor's working papers to ensure compliance with the company's quality control procedures The audit team focuses on identifying risks that could materially impact the financial statements, leading to the auditor's opinion Following this, an independent team conducts a thorough review of all working papers through a cross-control procedure, ensuring adherence to the company's quality and ethical regulations.
Year-end audits often face manpower shortages due to seasonal demands, leading to interns handling non-significant account audits Despite oversight from audit seniors, managers, and partners, relying on inexperienced interns poses risks to the company's social benefits and reputation.
Uncooperative clients pose significant challenges for auditors, hindering their ability to effectively gather evidence Some clients exhibit unhelpful behavior by failing to provide necessary documents upon request, which restricts auditors from collecting adequate and appropriate evidence This lack of cooperation ultimately affects auditors' capacity to form reliable opinions on the reasonableness of financial statements.
Familiarity plays a significant role in the audit process, as audit teams are often assigned based on previous assignments with clients For instance, if Auditor A audits Client B one year, the likelihood of A being assigned to B in subsequent years is high This continuity can benefit the audit process, as a familiar auditor is usually more knowledgeable about the client's processes and policies, allowing for quicker identification of risks and efficient completion of tasks However, a long-term relationship may hinder the auditor's ability to detect new risks or errors, leading to a focus on past mistakes or, worse, a tendency to overlook current client errors This situation can compromise the independence and objectivity of the audit report.
In addition, the application of fixed assets audit at ABC Company sometimes proved not really effective in fixed assets audit process at Deloitte:
Auditors often face challenges due to their limited experience with the specific machinery and equipment used by different enterprises, as each industry has unique characteristics Consequently, the auditing process for fixed assets frequently overlooks the need to reassess the condition of these critical assets.
Auditors must carefully evaluate their resources and time constraints during an audit, which can lead to incomplete detailed testing For instance, in the test of detail for fixed assets depreciation (TOD 8), auditors have only analyzed the year-over-year fluctuations rather than examining monthly variations As a result, they may lack a comprehensive understanding of the status and characteristics of fixed assets for the current year.
To alleviate the strain on human resources during peak seasons, Deloitte Vietnam should consider increasing its workforce Furthermore, interns should be utilized primarily for support roles rather than being assigned main responsibilities for accounts, as they lack the necessary experience and professional expertise.
Deloitte Vietnam should expand its training offerings to include classes focused on the specific characteristics of various business types This initiative will enhance auditors' understanding of machinery and equipment, ultimately facilitating more accurate assessments of their operational status.
When evaluating fixed asset depreciation expenses, auditors should analyze the monthly allocation table for depreciation and determine if the variations align with the entity's fixed asset status during that period.
Over the past 25 years, the audit industry in Vietnam has experienced significant growth in both scale and quantity, establishing a vital role in the national economy Audit firms are enhancing service quality to better meet market demands, offering a range of services that include auditing and financial advisory These contributions have played a crucial role in refining economic and financial policies, effectively supporting state management and business operations.
Deloitte Vietnam, part of Deloitte International, is committed to expanding its operations and enhancing service quality under the motto "Making an impact." To achieve this goal, the firm frequently conducts training sessions aimed at improving employee professional skills and has established rigorous quality audit processes to ensure high standards in service delivery.