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Reasons for writing
In Vietnam, the demand for auditing services has significantly increased, highlighting the necessity for transparency in financial statements (FS) among businesses This need has led to the emergence of FS audits, which deliver independent audit reports, ensuring that users can trust the financial information provided These audits assess whether the FS comply with regulatory principles and standards, confirming the accuracy and fairness of the information presented.
The role of auditors has become increasingly vital, as they ensure transparency in financial information, enhance the reliability of financial statements, and foster confidence among investors and users of financial statements.
During the audit of an enterprise, it became evident that fixed assets are a significant component of the balance sheet, often representing a large portion of a company's financials The recording and associated risks of fixed assets vary depending on the enterprise's operations Additionally, the depreciation of fixed assets is a critical expense that greatly influences corporate income tax calculations Given its sensitivity and the regulatory scrutiny from the Ministry of Finance, the author chose to explore the topic "Auditing of Fixed Assets at KPMG Vietnam Co., Ltd" to gain deeper insights into the audit process related to corporate management expenses from both theoretical and practical perspectives.
Purpose of the study
- Apply the knowledge that is already learned at school in order to know the differences between theory and practice
- Describe the general audit procedures at KPMG Vietnam Company Limited
- Research the audit procedures of FA of KPMG Vietnam at clients’ enterprises.
Methodology of the study
- Collect and read the audit documentation of the company to understand how to perform audit procedures in reality, especially audit of FA
- Be directly involved in the audit process and observe auditors perform an audit of FA at clients’ companies
- On the basis of theory and available data, using personal practical experience to analyze the audit process, thereby synthesizing, drawing comments, and proposing recommendations.
Scope of the study
This study examines the audit procedures of financial audits (FA), utilizing client documents, bookkeeping records, auditors' working papers, and previous financial statements as primary sources The analysis is based on data from the accounting period spanning January 1, 2022, to December 31, 2022, incorporating the author's insights and experiences.
KPMG Vietnam Company Limited prioritizes the confidentiality of client data, ensuring that all information, evidence, and vouchers presented in this report are simulated Consequently, this leads to an unavoidable reduction in the realism of the study.
Limitations of the study
The writer acknowledges limitations in practice time, research, and professional knowledge, which hinder a comprehensive exploration of the topic Additionally, KPMG Vietnam Company Limited mandates strict confidentiality regarding client data, resulting in the use of simulated information, evidence, and vouchers in this report Consequently, this leads to an unavoidable reduction in the study's realism.
Structure of the study
- Besides the introduction, the study has three main chapters below:
Chapter 1: KPMG Vietnam Company Limited overview
Chapter 2: General audit procedures and audit of fixed assets of KPMG Vietnam Company Limited
KPMG VIETNAM COMPANY LIMITED OVERVIEW
General introduction
1.1.1 Historical background and formation of KPMG Global
KPMG Company Limited is a leading multinational professional services provider and one of the Big Four accounting firms, alongside Ernst & Young (EY), Deloitte, and PricewaterhouseCoopers (PwC) With its headquarters located in Amstelveen, Netherlands, KPMG operates in 143 countries and employs over 265,000 professionals globally.
KPMG's founders were key figures in the industrial revolution, significantly shaping the accounting profession William Barclay Peat, who became the "P" in KPMG, started his accounting career at just 17 with Robert Fletcher & Co He quickly rose through the ranks and in 1891 rebranded the firm as William Barclay Peat & Co Meanwhile, the American company Marwick, Mitchell also played a crucial role in the firm's history.
Founded in 1897 in New York City by Scottish immigrants James Marwick and Roger Mitchell, & Company quickly established a strong reputation despite skepticism about the need for accountants in the city.
In 1917, Piet Klynveld established a small accounting firm in Amsterdam, which later became Klynveld Kraayenhof & Company (KKC) after Jaap Kraayenhof joined By the time Klynveld passed away in 1946, KKC had grown into the largest accounting firm in the Netherlands Over fifty years later, in 1953, Reinhard Goerdeler, the final founding figure of KPMG, entered the scene by joining Deutsche Treuhand-Gesellschaft (DTG).
KMG (Klynveld Main Goerdeler) was established in 1979 through the collaboration of independent national firms, including Klynveld Kraayenhof & Co from the Netherlands, McLintock Main LaFrentz from the UK and US, and Deutsche Treuhand-Gesellschaft from Germany, with the aim of creating a strong European-based international firm Reinhard Goerdeler, the CEO of Deutsche Treuhand-Gesellschaft, became the inaugural CEO of KMG.
In 1987, KMG and Peat Marwick merged to form KPMG in the United States and Peat Marwick McLintock in the UK, marking the first major merger among prominent accounting firms The company was renamed KPMG Peat Marwick in 1991 and reverted to KPMG in 1999.
KPMG offers expert services to clients in 143 countries, including a quarter of the world's largest enterprises, and caters to a diverse range of industries, from multinational corporations to local businesses and governmental organizations In the Asia Pacific region, KPMG has established a robust network of knowledgeable and specialized professionals to effectively address client needs Furthermore, KPMG is recognized as a leading provider of financial services in Hong Kong.
Kong, Thailand, Singapore, Malaysia, Taiwan, China, the Philippines, Indonesia, Australia, Cambodia, Laos, and Vietnam
1.1.2 Historical background and formation of KPMG Vietnam
KPMG Vietnam has been operating since 1992, initially opening a representative office as part of KPMG Global The company was officially established as KPMG Limited Liability Company under Investment License No 863/GP, granted by the Ministry of Planning and Investment on May 17, 1994 Fully owned by foreign investors, KPMG Vietnam started with an initial investment of 1 million USD and was granted a business license valid for 20 years To support its operational expansion in Vietnam, the investment capital was increased to 4 million USD in April 1998.
Type of business
KPMG Co., Ltd is a limited liability company based in Vietnam and is part of the KPMG International network, which consists of independent firms affiliated with KPMG International, a legal entity established under Swiss law.
KPMG, established in Vietnam in 1994, operates offices in Ho Chi Minh City, Hanoi, and Da Nang Acknowledged as the leading auditing firm by the Ministry of Finance and VACPA, KPMG excels in revenue, client base, and qualified auditors With over 1,700 professional accountants, it stands as one of the largest providers of professional services in Vietnam, serving a diverse array of international and domestic clients.
KPMG headquarters in Vietnam consists of:
- Hanoi: 46th Floor, Keangnam Hanoi Landmark Tower, 72 Building, Plot E6, Pham Hung Street, Cau Giay New Urban Area
- Ho Chi Minh City: 10th Floor, Sunwah Tower, No 115, Nguyen Hue Street, Ben Nghe Ward, District 1
- Da Nang: Unit D3, 5th Floor, Indochina Riverside Tower, No 74, Bach Dang Street, Hai Chau 1 Ward, Hai Chau District
Services provided by KPMG Vietnam
KPMG offers independent auditing services to clients in an effort to improve the intergrity and reliability of financial information, which includes:
- International Financial Reporting Standards (IFRS)
As tax laws become increasingly complex, effective tax governance is essential for corporations To ensure compliance with obligations, identify planning opportunities, and keep markets and regulators informed, KPMG collaborates with clients to develop robust tax policies and processes.
- Dispute resolution and controversy service
Over 50 devoted legal professionals from Vietnam, Australia, Italy, Canada, Mainland China, Taiwan, the states of New York and California, as well as Vietnam make up KPMG Law in Vietnam KPMG assist clients in creating a plan that works for their company and provides value and flexibility by seamlessly integrating market-leading tax and law expertise with cutting-edge technology
In today's interconnected business landscape, every decision clients make—whether related to business strategy, acquisitions, fundraising, divestitures, or restructuring—must consider the broader context of their companies, industries, and the global economy KPMG's integrated team of specialists operates at deal speed throughout the acquisition lifecycle to assist clients in uncovering, securing, and delivering value effectively.
In today's turbulent economic climate, businesses are increasingly seeking diverse advisory services to navigate numerous opportunities and challenges KPMG's consulting experts specialize in various corporate health areas, including profitability, transformation, technology, risk management, growth strategies, organizational structure, and operational efficiency.
Main clients
KPMG main clients include: Vinamilk, Hoa Phat Group, Masan, Hoa Sen Group, Vietcombank, CitiBank, Vietcapital Bank, Petrolimex, Sabeco, Suzuki, Honda, Mercedes, Vincom, Vinpearl
Values and Culture
KPMG values shape everyday actions and decisions, influencing interactions among employees, clients, and stakeholders, while guiding the audit process and overall business conduct.
- Integrity: We do what is right
- Excellence: We never stop learning and improving
- Courage: We think and act boldly
- Together: We respect each other and draw strength from our differences
- For Better: We do what matters
KPMG's motto, "Cutting through complexity," encourages employees to critically analyze intricate issues and communicate them clearly, enabling informed decision-making.
KPMG stands out with its KPMG Business School, which provides students with up-to-date insights on careers, workplace dynamics, and leadership skills The company prioritizes continuous learning, offering employees opportunities to enhance their knowledge even amidst busy schedules This commitment underscores KPMG's dedication to knowledge acquisition and employee development, ensuring a high caliber of human resources.
Every Friday, KPMG has an interesting event called "Feel Good Friday." People won't be required to wear professional attire and can work anywhere they want.
Overall organization structure
KPMG Vietnam specializes in financial and accounting services, with its organizational structure divided into two primary components: administration departments and professional departments.
The Administration Department encompasses the Finance Department, People, Performance & Culture (PPC) Department, and IT Department It is responsible for managing the company's financial and accounting tasks, organizing employee salaries, and providing essential forms, documents, and services Additionally, the department supplements and amends financial regulations, develops detailed financial plans, and collaborates with professional departments to address revenue and expenditure challenges for the board of directors The IT Department ensures the effective operation of the company's network system, providing necessary hardware and software while maintaining information security and safety.
The professional departments include three main operation departments, namely audit department, consulting department and tax department, corresponding to the current services KPMG is providing
1.6.2 Functions and duties of audit departments
For the audit department, it is divided into 4 sub-departments:
- Audit 1: specializing in auditing projects and NGOs
- Audit 2 and 4: specializing in auditing manufacturing enterprises
- Audit 3: specializing in auditing banking and financial enterprises
Finance PPC IT Audit Consulting Tax
Collaboration among departments is essential to meet client needs, especially given the fluctuating number of customers across different industries To maintain efficiency within the organizational hierarchy, the audit department's workforce is structured into various levels, ensuring streamlined operations from high to low.
Diagram 1.2 KPMG Vietnam Career Hierarchy
GENERAL AUDIT PROCEDURES AND AUDIT OF FIXED
Overview of Fixed Assets on Financial statements
2.1.1 Definition of Fixed Assets on Financial statements
Fixed assets (FA) are defined as valuable resources with a usable life, turnover, and recovery period extending beyond one year or the duration of a business cycle, which is considered to be one year or longer.
Financial assets (FA) include both utilized and unused assets in the production and business processes, such as machinery and equipment that have been acquired but not yet installed, as well as unfinished buildings under construction Additionally, FA encompasses assets that, while not expired, are currently inactive Financial lease assets that the business will ultimately own are also classified as FA.
Tangible fixed assets, as defined by VAS 03 of the Ministry of Finance (2001), are physical assets held by businesses for operational and production purposes, and they must meet specific criteria to be officially recognized.
Assets recognized as tangible FA must simultaneously satisfy all four of the following recognition criteria:
- It is probable that future economic benefits will flow from the use of the asset;
- The historical cost of the asset must be measured reliably;
- Estimated useful life of more than 1 year;
- Satisfies the current regulatory value criteria
According to VAS 04 from the Ministry of Finance (2002), intangible fixed assets (FA) are defined as non-physical assets utilized by businesses for production, service provision, or leasing to other entities Despite lacking a tangible form, these assets possess distinct value and are recognized based on specific standards for intangible FA.
FA is similar to the tangible one in VAS 03
According to VAS 06 from the Ministry of Finance (2003), a financial lease transfers all risks and benefits of asset ownership from the lessor to the lessee At the end of the lease term, the ownership of the property can be transferred to the lessee.
A lease that is not a finance lease is an operating lease
In financial leases, the lessee must manage and utilize the leased fixed assets (FA) as though they are owned by the business, while also complying with the lease contract terms Current regulations mandate that businesses treating leased FA as financial leases must depreciate these assets similarly to their owned fixed assets.
Depreciation is the methodical assessment and distribution of an asset's value as a result of the asset's deterioration over time
Depreciation of fixed assets (FA) refers to the allocation of the asset's cost as an expense over its useful life, reflecting the gradual loss of value due to wear and tear from usage, environmental factors, and technological advancements Understanding fixed asset depreciation is crucial for accurately assessing production and operating expenses.
There are three FA depreciation methods:
- Double declining balance depreciation method
- Units of production depreciation method
Ineffective asset management can lead to significant issues, including the lack of essential records and documentation, failure to transfer ownership of fixed assets (FA) to the company, and inadequate tracking of each asset type, which ultimately wastes auditing time Additionally, improper handling, storage, and usage of assets can cause damage, depreciation in value, and potential unsuitability for business needs.
Misappropriation of FA: using FA for improper purposes, using wastefully resulting in inefficiency; Using FA at incorrect capacity; Using FA for personal purposes (abuse); Stealing FA
Inaccurate recording of fixed assets (FA) can lead to significant issues, including the failure to promptly register assets and improper maintenance cost accounting Additionally, neglecting to assess risks and avoid purchasing insurance for high-value assets can result in substantial losses Furthermore, the lack of periodic inventories exacerbates the potential for fixed asset losses.
Inappropriate depreciation methods can lead to significant financial discrepancies, including fully depreciated fixed assets that continue to lose value, financial lease fixed assets that are not subject to depreciation, and fixed asset depreciation related to operating leases Additionally, using an incorrect estimated useful life can result in inaccurate depreciation calculations, or depreciation may be recorded in the wrong accounting period, further complicating financial reporting.
Confusion regarding the expenses of investing and return costs.
General audit procedures of KPMG Vietnam
Large auditing firms, including KPMG, have developed standardized audit methods for global application KPMG currently utilizes two primary auditing frameworks: the KPMG Audit Manual (KAM) and the KPMG Audit Execution Guide (KAEG), alongside tools for managing audits, such as eAudit and KPMG Clara workflow (Kcw) KAEG serves as an enhanced version of KAM, reflecting ongoing industry innovations and global changes KPMG aims to fully implement KAEG and Kcw in the future, with this article focusing specifically on the working papers and processes associated with Kcw.
- Requirements and guidance on the application of International Auditing Standards (ISAs)
- Requirements and guidelines developed by KPMG
The audit process of KPMG according to KAEG is shown in the following diagram 2.1:
Diagram 2.1 General audit process according to KAEG
Figure 2.1 KPMG Audit Manual (KAM)
Figure 2.2 KPMG Audit Execution Guide (KAEG)
Step Content Person in charge
The audit engagement risk for new or returning customers is assessed by the manager, who evaluates whether to accept the contract based on this review If the decision is made to proceed, a contract with clear and precise terms is prepared to mitigate audit risk effectively.
In this step, the manager gains knowledge of the client and the outcomes they have obtained while also learning about the objectives, plans, and preferences of the client
The auditor will assemble an audit team to get ready to carry out the audit as scheduled after the Firm and the Client have reached an understanding
Gather essential information about clients, including stakeholders interested in the company's operations, minutes from key meetings for co-owners, documents outlining the company's objectives, updates on personnel changes, operational methods, procedures, and the IT environment utilized within the company.
Learn about the internal control system and identify possible errors and fraud
During this phase, the auditor gains insight into the internal control framework for each operational and accounting cycle, enabling the identification of potential errors and fraud Additionally, understanding the client's software systems used for generating and presenting financial statements is a crucial part of the research process.
Set up an audit program
Here's how the auditor will move forward:
When engaging with customers, it is essential to discuss key topics such as the business's position, size, operational environment, and any updates or changes from the previous year.
Identify materiality: There are three major degrees of importance at KPMG Vietnam:
Understand and evaluate the main types of business and related control procedures
In this phase, the auditor analyzes both common and rare transaction types, assessing their impact on financial accounts They develop control tests to differentiate between various business categories and explore computerized accounting systems.
Sort and update evaluations of the internal control system according to risk categories, from the lowest to the highest (not just walk- through testing)
Evaluate risks Calculate how control risk will affect the financial statements
Using analytical procedures to categorize and assess the plausibility of account balances and items
Check the details Obtain information to evaluate the item's truthfulness and reasonableness
Implementation strategies include thorough balance checks, thorough professional checks, and others
Analyze the audit findings to see if the audit evidence acquired is sufficient and appropriate to back up the conclusion that will be made in the auditor's report
Manager will give the opinion on the audit report after all the procedures have been performed
The audit process is thoroughly documented, ensuring that the evidence gathered is both sufficient and relevant to substantiate the audit findings and observations Additionally, a comprehensive review of the work is conducted to ensure coherence and consistency throughout the audit.
Table 2.1 Description of duties of an audit engagement
Audit planning, as defined by Generally Accepted Accounting Principles (GAAP) and International Standards on Auditing 300 (ISA), is essential for ensuring a successful audit process It involves organizing and monitoring the audit to prevent disputes with clients and to maintain the quality of the work performed Effective audit planning allows auditors to gather sufficient and relevant evidence while facilitating coordination with various departments, ultimately helping to keep costs low for the audit.
The auditor will employ tests of control and substantive procedures, including detailed tests and substantive analytical procedures, to collect relevant and sufficient data that will form the basis for conclusions on the financial statements.
The auditor's responsibility for this test is to assess the efficacy and efficiency of the client's internal control in preventing or identifying and correcting serious assertion-level
To effectively assess expectation misstatements, it is crucial to evaluate the effectiveness of an organization's internal control system Tests of control are designed to verify whether the internal controls are functioning as intended, as outlined during the planning phase This process ensures that any discrepancies are identified and addressed, ultimately enhancing the reliability of financial reporting.
When creating and carrying out tests of controls, the auditor will:
- Perform other audit procedures, as necessary, to obtain audit evidence about the operating effectiveness of the controls, including:
• How controls were applied at relevant times during the audit period;
• Is consistent with which they are applied, and by whom or how they have been applied
- Determine whether the controls under test depend on other controls (indirect controls), and, if so, whether audit evidence about those other controls is available
To gather audit evidence regarding the efficacy of controls in operation, the following audit processes may be employed, frequently in combination:
Diagram 2.2 Description of substantive analytical procedures according to KAEG
Analytical operations encompass a diverse range of methods, from simple comparisons to complex analyses that involve multiple relationships and data points, as well as advanced statistical techniques Key methods include straightforward comparisons and intricate analyses that leverage modern statistical approaches.
In order to determine a quantity and compare it to a previously recorded amount, predictive analysis uses data points from one or more time periods or sources
Trend analysis involves comparing the same data points from several sources or time periods
Ratio analysis between two or more data points utilizing information from several eras or sources is known as ratio analysis
Auditors utilize data analysis to identify anomalies in accounting data, applying their professional judgment to highlight unique items that require further investigation This process leads to the execution of additional audit procedures on these identified anomalies.
When detected variables or associations contradict relevant data or significantly differ from expected values, comprehensive analytical procedures become essential Relevant data may include figures from the previous year or values identified during interim reviews.
The audit process's most critical step involves gathering essential evidence to evaluate the accuracy and reasonableness of the report As outlined in KAM 9.1605 regarding Auditing Evidence, auditors must assess the effectiveness of the selection methods used for testing items while developing comprehensive tests.
The following substantive sampling techniques can be used to perform detailed tests:
Diagram 2.3 Description of test of details according to KAEG
In addition to requirements, tests of detail may also involve one or more of the following audit techniques, frequently in combination:
Various audit entities of the FS will determine the precise audit methods and procedures to be used
The audit concludes once sufficient relevant evidence has been collected to substantiate the audit opinion Several key factors are considered during this final stage of the audit process.
- Events after the reporting period
Audit of Fixed Assets of KPMG Vietnam
KPMG's audit department management performs an independent assessment of potential clients using a structured questionnaire before accepting an audit The depth of the interview questions varies based on whether the client is new to the firm.
The organization is committed to executing the audit through questionnaires and in-person interviews with clients KPMG will assign qualified auditors and assistants to the audit team based on client needs, task complexity, and volume A preliminary agreement will be established regarding audit fees, charges, reporting dates, and contract signing, all documented in a confirmation letter.
To alleviate the year-end audit workload and reduce pressure on auditors, KPMG will coordinate with human resources to perform interim audits of financial statements at the end of each quarter, specifically in September, October, and November This approach aims to enhance understanding of clients and their internal control systems while facilitating a smoother audit process.
Information to keep an eye out for includes:
- The environment and field of operation of the enterprise
- Evaluation of internal control and related controls
- Assessment of the information technology environment
- Determination of the level of materiality
Auditors must collect essential documents such as establishment licenses, investment certificates, and business registrations to identify the investor, industry, and related parties This process helps them understand the business environment, including the type of business, products and services offered, market dynamics, and internal factors like ownership and management characteristics Additionally, auditors need to gather minutes of board meetings, board decisions, the company's charter, and other relevant documents, which will be organized and regularly updated in the audit file.
Auditors obtain an understanding of the entity using many sources of information
In doing so they consider performing the procedures and document the procedures performed by:
To effectively assess an entity, it is crucial to review relevant public information, including press releases, analyst presentations, and analysts’ reports This evaluation should focus on the clarity and consistency of the entity's public disclosures while also considering potential fraud risks associated with third-party expectations.
- When the information is publicly available and relevant, analyzing and documenting large individual sales of the entity
2.3.1.3 Understanding the clients’ internal control system
KPMG will conduct an interim audit of all cycles and related data, focusing on the client's internal control system Designated audit assistants will be assigned to each component to gain insights into the internal controls, after which they will compile the findings and upload them to KPMG Clara, the company's internal system, to facilitate future procedures.
Methods of finding out the client company's internal control system:
- Interviewing members of the Board of Directors and staff from pertinent departments
- Inspection of all paperwork and receipts
KPMG will analyze internal control system data related to significant client transactions to evaluate the risk of material misstatements for each assertion This process enables the firm to identify and address any client errors effectively After testing the controls, KPMG will assess the control risks associated with the client's internal control system.
The auditor will summarize the key control procedures for each item after gaining a comprehensive understanding of the business cycles and related control activities Following this, the auditor will select samples for a Walk-through test, which involves a physical inspection of the operations to verify that the control procedures are being implemented as outlined.
2.3.1.4 Preliminary assessment of control risk and determination of materiality
KPMG Vietnam establishes materiality levels based on the client's understanding of the internal control system, which helps focus the audit, determine the appropriate sample size, and reassess potential audit errors To ensure financial statements (FS) are free from significant misstatements, auditors evaluate the overall permissible misstatement at the FS level.
The overall materiality (OM) of financial statements refers to the maximum level of errors that an auditor deems acceptable, where these discrepancies do not influence the decision-making process of users relying on the financial information Various levels of OM are established to guide this assessment.
This ratio is influenced by a variety of other elements, including how well the internal control system is functioning
An acceptable level of misstatements for a particular item on the financial statements is called performance materiality (PM) PM is typically defined as
- Audit Misstatement Posting Threshold (AMPT)
The audit misstatement posting threshold (AMPT) represents the level of inaccuracy that requires correction, and any spread adjustment is neither essential nor critical for the overall value AMPT values are considered most beneficial when they effectively guide the accuracy of financial reporting.
KPMG establishes materiality based on the client's operations and risk level on the basis of:
- Earnings before interest, taxes and depreciation (EBITDA)
Materiality prioritizes key company outcomes, such as profit before tax and total revenue, in line with KPMG Global standards It is primarily established through a comprehensive assessment of historical adjustments that have been proposed or implemented.
The auditor develops a comprehensive audit plan for each item, outlining the specific tests to be performed, the quantity of tests required, the time allocated for each, and relevant contact information This plan is informed by the assessment of the internal control system and the identified risk of material misstatement.
Auditors leverage their existing knowledge of the client company to identify and evaluate events or situations that could negatively impact their ability to effectively plan and execute audits They also establish tailored audit approaches for specific items, identify potential errors within the organization, and conduct an initial assessment of control risks.
According to International Audit Standard No 300 (ISA 300), auditors are required to develop a comprehensive audit strategy that outlines the scope, timing, and direction of the audit while guiding the formulation of audit plans This overarching strategy is essential for ensuring an effective and efficient audit process.
- Determine the audit contract's nature and scope;
- Ensure reporting goals while determining the audit's duration;
- Take into account the essential elements that directly impact the audit team, using professional judgment;
- Establish the nature, timing, and scope of the resources needed to take part in the audit
Reality of audit process of Fixed Assets of KPMG Vietnam at ABC Joint Stock
2.4.1 Overview of ABC Joint Stock Company
The first steel business with a 100% foreign capital investment in Vietnam was ABC Joint Stock Company, which was founded in 1996
The company specializes in manufacturing and marketing a variety of steel products, including Steel Pipes & Tubes, Hot-dip Galvanized Steel Coil, and Prepainted Hot-dip 55% Al-Zn Coated Steel Coil These products are primarily utilized in sectors such as construction, civil engineering, home appliances, and bicycle and motorcycle components Notably, they are the first and only company in Vietnam authorized to brand their products with their logo, highlighting their unique position in the market.
The ABC company in Vietnam has a total charter capital of 130,000,000 (One hundred thirty thousand) USD As of December 31, 2022, the company's staff size is 511 Vietnamese employees, and 13 expatriates
2.4.2 Internal control of ABC Joint Stock Company
A brief overview of the client's controls is described as follows:
The chief financial director oversees the accounting division, ensuring effective management of the accounting and finance department Additionally, the deputy general director serves as the ultimate authority within this division The manager of the accounting department is responsible for various essential duties to maintain financial integrity and efficiency.
- Manage the activities of the Accounting Department
- On the basis of supporting documentation and vouchers, manage and administer cash flow, cash receipts, and cash payments
Effective management of a company's resources and capital is crucial for financial stability This includes overseeing current assets, fixed assets, short-term and long-term investments, as well as managing receivables and payables Additionally, it is important to monitor both short-term and long-term liabilities, equity, and loans, alongside securities transactions By maintaining control over these elements, a company can ensure optimal financial performance and strategic growth.
- Financial management, payables, payables, and bad debt management
- The General Director or Deputy General Director must give their approval before beginning or ending any transactions with the bank
This year, the auditor learns about the new changes of the company by interviewing the Board of Directors (BOD) according to the following table:
How do those charged with governance provide effective oversight of the entity’s programs and controls to prevent, detect and deter fraud?
Through frequent BOD meetings with participation of Company’s management to supervise and comment on the Company’s programs and controls to prevent, detect and deter fraud
How do those charged with governance provide effective oversight of management’s process for identifying and responding to fraud risks?
Regular BOD meetings, attended by the Company's management and myself, allow for close oversight of daily operations and facilitate discussions on the management's strategies for identifying and addressing fraud risks.
How does the entity budget or forecast its financial performance?
How does the year-to-date performance and the expected performance for the remainder of the year compare to budget and prior year?
The budget is prepared mainly based on market condition for occupancy rate
In general, year-to-date performance has net the budget
How does the entity's financial performance compare to that of its competitors or other companies in its industry?
The Company’s financial performance is always better than other competitors in the market as a result of good reputation
What controls are in place related to oversight of management and prevention of override of controls by management?
Have there been changes in these controls?
The Board of Directors (BOD) conducts annual meetings to assess the previous year's performance and approve the budget for the upcoming year Additionally, the General Administration (GA) provides monthly management accounts that summarize revenue, expenses, and key management issues compared to the budget This process ensures that the company's management operates under the close supervision of the BOD.
What policies, procedures and controls are in place related to conflicts of interest, travel and entertainment expenses, related party transactions, inappropriate use of the entity's assets, and illegal acts?
Do they cover bribery and corruption, political donations, gifts or discounts from suppliers or payments to obtain favorable treatment in obtaining business?
There is no instance of fraud in management conduct in the Company’s history
What are the key controls that have been established to create an effective control environment?
Have there been changes in these controls?
What control deficiencies exist related to the control environment?
Key controls involve active participation from management and governance in the company's daily operations, fostering an effective control environment This approach remains unchanged, ensuring that there are no deficiencies in control.
Has the entity established a code of conduct and related policies regarding acceptable business practices and ethical behavior?
- If so, have the code and related policies been implemented, communicated and monitored by management?
- Has appropriate training been provided to staff, sub-contractors, intermediaries and agents to promote the entity’s code of conduct and related policies?
The Company has developed a comprehensive code of conduct along with policies that outline acceptable business practices and ethical behavior These guidelines have been effectively implemented, communicated, and monitored by management, who also exemplify the standards expected of all employees.
How is the entity complying with the legal and regulatory framework?
The Company has complied with VAS and other relevant regulations in Vietnam
What policies, procedures, and controls has management established to identify instances of noncompliance with laws and regulations, including illegal acts?
The management has constantly updating with new law and regulations to prevent noncompliance
Table 2.4 Extract of client interview questionnaire
2.4.3 Preliminary assessment of control risk and determination of materiality
2.4.3.1 Preliminary assessment of control risk
❖ Understanding the industry factors, including the competitive environment and technological developments
In 2022, global production of finished steel products exceeded 20,807 million tons, while consumption approached 19,261 million tons Additionally, the price of iron ore in early December 2022 ranged from 97.75 to 98.23 USD per ton, reflecting a decrease of approximately 35 USD per ton compared to December 2021 Similarly, the price of coking coal saw a significant drop of 45.5 USD, settling at 254.5 USD per ton FOB compared to the beginning of December 2021.
In 2022, VSA's assessment indicated a notable increase in the production and consumption of various steel products, driven by the strong business performance observed in the early months of the year.
In 2022, steel exports, including finished and semi-finished products, totaled 5.49 million tons, generating over $5.63 billion in revenue This marked a significant decline of 22.57% in both volume and value compared to the previous year, 2021.
In 2022, the market for steel materials experienced significant fluctuations, with the Vietnam Steel Association (VSA) reporting a continuous decline in raw material prices since late 2021.
❖ Understand the regulatory environment, including the applicable financial reporting framework and legal and political environment
- The entity is obliged to comply with human resources legislation governing its interaction with its staff This legislation includes provisions on hiring staff, health and safety working condition
- The entity is obliged to comply with environment legislation governing its general operations
- The entity is obliged to comply with tax regulation
Entities must adhere to company law regarding regulatory filings with local authorities, which outlines the required information for submission and establishes penalties for non-compliance.
The client adheres rigorously to local regulations, ensuring compliance with established standards and policies The chosen accounting policies are deemed acceptable and suitable for the company's operations.
The company itself monitors legal requirements and ensures that operating procedures are designed to meet requirements from above standards, policies by:
- Developing, publicizing and following a code of conduct
- Ensuring employees are properly trained and understand the code of conduct
- Monitoring compliance with the code of conduct and acting appropriately to discipline employees who fail to comply with it
- Considering engagement of legal advisors to assist in monitoring legal requirements
The management of the company is responsible for updating any regulations and transferring them to employees to prevent any illegal actions
Accordance with ISA 320.11, we assessed the level of risk is normal
Factor Indicators of Normal aggregation risk
Indicators of Increased aggregation risk
Indicators of High aggregation risk
Level of turnover of senior management or key financial reporting personnel
An entity that has recently had no or very little turnover in senior management, none of which related to potential impropriety or fraud
An entity that has recently had some turnover in senior management (being a few key positions), none of which related to potential impropriety or potential fraud
An entity that has recently had significant amount of turnover in senior management (being several key positions), or has turnover that related to potential impropriety or fraud
Applicable Not applicable Not applicable
This year, the company experienced limited liquidated assets and made modest purchases of fixed assets (FA) However, the transition from categories 151, 152, and 153 contributed significantly to the overall value of added fixed assets Given that the inherent risk is assessed as medium and control risk is low, the detection risk is consequently high.
In financial statements, overall materiality is prioritized over operational metrics such as profit before tax and total revenue, as investors and shareholders primarily focus on profitability, in line with global PwC standards To assess materiality levels, auditors utilize total revenue as a benchmark For a comprehensive guide on determining materiality, please refer to Appendix 1.
- Overall materiality OM equals 2% of total sales
- The materiality level of PM implementation is 74.91% OM
- Audit misstatement posting threshold AMPT equals 5% OM
The audit plan for FA is shown in the following table:
Risks Audit objectives Audit procedures
FA may be recorded more than their actual value
Existence Collect detailed book of FA and compare with ending balance on arising BS as well as BS
Perform detailed analytical procedures to check and compare the balance of FA Perform ToD of the balance of tangible and intangible
FA Summarize the addition, disposal, balance of FA, compare with the data on the FS
Analyze and explain major fluctuations in each group of tangible FA
Compare data from the detailed book, general ledger with the minutes of inventory of FA made at the end of the period
FA that has been liquidated but have not yet recorded a disposal
Existence Reconciling documents on liquidation of FA during the year with the fixed asset register as well as the value of fixed asset items on the
FA may be recorded lower than their actual value
Completeness Filter out from the general journal of customers long- term prepaid expenses (> 1 year), valued at over 30 million VND to consider whether they are FA or not?
FA may be incorrectly classified according to groups
Reclassify FA by group to be in accordance with regulations specified in Circular 147/2016/TT-BTC
Depreciation expenses may be miscalculated
Accuracy and valuation Perform analytical procedures to check depreciation expenses, compare with the recorded expenses
Perform ToD of depreciation expenses
Identify transactions that may not occur that lead to:
• Disposal in FA during the period when FA is written off
• Asset write-off (such as a change in production that renders some assets obsolete)
Recalculate depreciation at cost (change if there is an event that changes historical cost) and compare with client recognition Table 2.6 Summary of audit plan
COMMENTS AND RECOMMENDATIONS
Comments on KPMG Vietnam Company Limited
After completing an internship at KPMG, the writer closely observed the company's audit procedures, particularly regarding fixed assets While their knowledge remains limited, they share insights on the advantages and disadvantages of these practices, drawing from both academic learning and hands-on experience gained during their internship.
KPMG Vietnam prioritizes the human element in its human resources strategy, focusing on hiring young, dynamic professionals with strong qualifications and work ethics The company fosters a supportive work environment where employees share a sense of camaraderie, maintaining a friendly and positive atmosphere while encouraging collaboration among all team members, regardless of their position.
KPMG Vietnam leverages a diverse range of specialized software to enhance the efficiency of the audit process This technological advantage is complemented by robust data security measures, as all information is securely stored in an external paper folder and on a shared data disk.
The integration of software in auditing has significantly enhanced the organization, thoroughness, and speed of the implementation process The KAM is meticulously structured, aligns with both Vietnamese and international accounting standards, and emphasizes risk assessment to tailor appropriate audit procedures that closely reflect the client's circumstances, ultimately providing a competitive advantage.
The company's audit process is meticulously crafted with insights from KPMG's global professionals, ensuring it is highly detailed and fully compliant with auditing standards.
The KPMG Audit Execution Guide (KAEG 2022) offers comprehensive, annually updated guidelines for determining materiality, tailored to accommodate a diverse array of clients with varying characteristics.
Effective job distribution involves assigning critical tasks to experienced, long-term employees, ensuring that their work is consistently reviewed and evaluated by higher management to minimize detection risks Meanwhile, new hires are assigned non-material tasks that allow them to gain valuable experience and develop their skills.
Prior to client meetings, the audit senior clearly defines the time, method, necessary documents, and topics for discussion, ensuring that the meetings are conducted efficiently.
Auditors primarily rely on information provided by customers, which is often influenced by the subjective assumptions of financial statement preparers and management, leading to potential biases and reliability issues Furthermore, if business owners attempt to hide critical information, it can significantly hinder the auditor's ability to conduct a thorough assessment.
A major challenge affecting audit quality and the materiality-setting process is the shortage of experienced personnel and high staff turnover The involvement of seasoned auditors is essential for complex tasks requiring significant professional judgment, such as determining materiality and risk analysis However, KPMG faces a high turnover rate, which adds considerable pressure on its remaining staff.
Comments on audit process of fixed assets of KPMG Vietnam
Understanding the auditing method for Fixed Assets (FA) at ABC Company provides insights into the thoroughness and efficiency of KPMG Vietnam Co., Ltd.'s auditing process The planning, execution, and completion of audits are guided by the KPMG Audit Guide, tailored to align with the unique business environment and legal framework in Vietnam.
The procedures encompass every facet of fixed asset management, including the evaluation of asset fluctuations, inspections of new acquisitions, and the liquidation process They also involve calculating depreciation expenses, assessing construction in progress, managing finance leases, capitalizing on major repair costs, conducting year-end asset inventories, and evaluating fixed asset insurance By addressing all potential risks, these procedures ensure the accuracy and reliability of fixed asset management.
KPMG's comprehensive test plan involves thorough testing processes and detailed analysis, efficiently conducted by auditors Throughout the audit phases—planning, implementation, and closure—auditors utilize analytical techniques that primarily focus on comparing historical cost, net book value, and depreciation expenses of fixed assets over time However, there is a noticeable lack of interest in employing ratio analysis, such as the fixed asset to total assets ratio or the depreciation expense relative to total incurred costs, as well as industry comparisons.
Analytical procedures are primarily utilized during the planning phase of an audit, enabling auditors to identify unusual variations and focus on detailed investigations However, due to time constraints and work pressure, auditors often skip this crucial step and rely solely on comparing values across different periods.
Recommendations
Estimating fixed assets poses significant challenges for auditors due to low accuracy levels To ensure the quality of the audit engagement, it is essential to hire specialists with professional judgment in this area Engaging an expert's perspective is vital, particularly during the client's preparation phase for the audit, where the complexity of fixed assets should be evaluated The expert judgment from an external specialist serves as a unique form of evidence, enhancing the auditor's ability to deliver a more precise assessment of the audit data.
Analytical procedures play a crucial role in the design of substantive tests, as they are a cost-effective auditing method that effectively guides detailed testing processes, including industry average assessments and index analysis.
Auditors should utilize key information from previous years documented in the audit file for established clients, as well as leverage their past auditing experiences when engaging with new clients This approach serves as a vital resource for obtaining evidence of the effectiveness of the client's internal control system Additionally, responsible parties must address inquiries related to fixed asset management posed by auditors.
To ensure a comprehensive audit, it is essential to apply professional judgment when selecting the audit sample, avoiding the oversight of uncommon items while focusing on significant goods and employing random sampling techniques Effective communication among audit team members is crucial; they should convene prior to the audit to share experiences and insights about the client, thereby minimizing the need for repetitive client interviews based on previous auditors' inquiries.
The audit industry is experiencing significant growth, highlighting the increasing importance of auditing in a flourishing economy KPMG Vietnam Co., Ltd has made notable advancements, solidifying its reputation and position in the market with high-quality services and prestige.
During a three-month internship at KPMG Vietnam Co., Ltd, the writer gained valuable insights into the organizational structure and operations of an audit firm This experience allowed for direct participation in the audit process, from planning to completion, and facilitated the application of academic knowledge in a practical setting The internship proved to be an effective learning opportunity, equipping the writer with essential skills and knowledge that will aid in their future career as an auditor.
During the internship, the writer gained insights into the auditing process and gathered valuable information about FA, supported by real-world examples and suggestions for improvement However, the graduate thesis may have limitations due to the writer's limited knowledge, lack of practical experience, and the short duration of the internship, which could affect the validity of some comments The writer seeks guidance from teachers and auditors to enhance the report's overall quality.
Sincere appreciation to Master Duong Trong Nhan, the internship's instructor, and the auditors at KPMG Vietnam Co., Ltd for their assistance and support
1 Website: https://kpmg.com/vn/vi/home/gioi-thieu.html
2 Ministry of Finance, Vietnamese Audit Standards, Finance Publishing House, Hanoi
3 Ministry of Finance, Vietnamese Accounting Standards System, Finance Publishing House, Hanoi
4 Ministry of Finance (2014), Circular 200/2014 / TT-BTC, Guidance on corporate accounting regime, Hanoi
5 Website: https://kpmg.com/xx/en/home.html
6 Website: https://www.ifac.org/content/international-standards-auditing
7 KPMG Global, KAM International 2022, KPMG Audit Manual
8 KPMG Global, KAEG International 2023, KPMG Audit Execution Guide