Illustrate the process of auditing financial statements of fixed assets accounts at company A&C applied to company A .... About the process of auditing the fixed assets item in the audit
Reasons for choosing the topic
Fixed assets represent a significant portion of a company's total asset value, making the condition of equipment, facilities, and technical resources crucial As a result, auditing fixed assets during a financial statement review is essential for accurately reflecting the enterprise's financial health.
The primary goal of a fixed asset audit is to verify the existence and ownership of fixed assets by the enterprise, ensuring they are fully completed, accurately classified, and properly presented in the financial statements in compliance with current accounting standards and regulations.
Auditing fixed assets is essential for identifying misstatements in fixed asset costs, repair expenses, and depreciation charges, which can lead to significant inaccuracies in financial statements.
The article focuses on the "Audit of PPE at Baker Tilly A&C Company Limited," aiming to thoroughly investigate the subject, gain insights from real-world applications, and clarify the audit procedures related to fixed assets.
The objective of the report
- Understand and describe the general audit process at Baker Tilly A&C Vietnam Co., Ltd
- StudyDescribe and analyse the process of auditing fixed assets at Baker Tilly A&C Vietnam Co., Ltd and apply that process to Company A
- Indicate advantage, disadvantages and room for improvement in audit process of PPE
Subject and scope of the report
The process of auditing fixed assets in the audit of financial statements at A&C
Studying the application of the process of auditing financial statements of fixed assets and depreciation of fixed assets at enterprise A for the year from January 1, 2021 to December 31, 2021.
Research method of the report
The study is based on the following main methods:
- Collect documents related to the topic of A&C
- Observing seniors to know the steps of an audit
- Collect working paper provided by seniors and use them for the topics
- Discuss with the auditors the issues within the scope of the topic
- Researching legal documents in the field of accounting and auditing via the internet, textbooks
Structural content of the topic
Chapter 1: Theoretical basis of fixed assets and fixed asset audit
Chapter 2: Audit process of fixed assets of Baker Tilly A&C company
THEORETICAL BASIS OF FIXED ASSETS AND FIXED ASSET AUDIT
Theoratical Basis
1.1.1 The concept of fixed assets
Fixed assets: are assets owned by the enterprise, of great value, for long-term use, and bring economic benefits to the enterprise
According to Vietnam Standard Accounting (VAS) No 03, Paragraph 5, tangible fixed assets are physical assets utilized by enterprises in their production and business operations, adhering to the established criteria for recognizing fixed assets.
Assets recognized as tangible fixed assets must simultaneously satisfy all four (4) 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 regulations value criteria
According to Circular 45/2013/TT-BTC: “The historical cost of assets must be reliably determined and have a value of VND 30,000,000 (Thirty million VND) or more”
Intangible fixed assets, as defined by VAS 04 of the Ministry of Finance (2001), are non-physical assets that can be identified and utilized by enterprises in their production, business activities, and service delivery, or leased to other parties, in accordance with specific recognition criteria.
Fixed assets under finance lease:
According to VAS 06 of the Ministry of Finance (2001), paragraph 4 provides as follows
A lease is a contractual agreement between a lessor and a lessee, where the lessor grants the lessee the right to use an asset for a specified duration in exchange for lease payments, which can be made as a lump sum or in installments.
A financial lease involves the Lessor transferring the majority of the risks and rewards of asset ownership to the lessee, often culminating in the potential transfer of ownership at the lease's conclusion.
An operating lease is a lease is a lease other than a financial lease
According to Paragraph 5, VAS 03 and paragraph 6, VAS 04: Depreciation is the systematic allocation of fixed asset's depreciable value over the course of its useful life
A fixed asset's depreciable value is its historical cost recorded in the financial statements, less (-) its expected liquidation value
The useful life of a fixed asset is influenced by two key factors: the period the enterprise plans to utilize the asset and the expected output in terms of products or equivalent units that the asset will generate during its use.
Liquidation value is the estimated value of an asset at the end of its useful life, less the estimated costs of disposal
Reasonable Value: The value of an asset might be traded in a parity transaction between knowledgeable parties
A fixed asset's residual value is its historical cost less the asset's total accumulated depreciation
According to VAS 06, a financial lease results in both asset depreciation costs and financial costs for each accounting period The depreciation policy for leased assets must align with that of similar owned assets by the lessee If ownership of the leased asset is uncertain by the lease's end, depreciation should occur over the shorter duration between the lease term and the asset's useful life.
“Vietnam Accounting Standard-VAS 03: Tangible fixed assets”
“Vietnam Accounting Standard -VAS 04: Intangible fixed assets.”
“Vietnam Accounting Standard - VAS 06: Lease of assets.”
“Circular 200/2014/TT-BTC of the Ministry of Finance guiding corporate accounting.”
“Circular 45/2013/TT-BTC of the Ministry of Finance guiding the regime of management, use and depreciation.”
1.1.3 Common risks to fixed assets
Common risks of fixed assets:
- Investment and procurement decisions: Investment is rampant without focus, leading to financial imbalance; Purchased for individuals but charged to the assets of the unit
Proper management of fixed assets is crucial for maintaining their value and efficiency Accurate recording of fixed asset information is essential, as errors such as misalignment with the correct accounting period, inappropriate depreciation methods, and incorrect estimates of useful life can lead to significant losses Additionally, failing to conduct periodic inventories can result in lost or unaccounted assets Furthermore, using fixed assets for improper or personal purposes can lead to wastefulness and inefficiency, ultimately compromising their intended value and utility.
- Liquidation of fixed assets: Not writing off paid fixed assets; sale at a low price; embezzlement of fixed assets
1.1.4 Client's internal control for Fixed Assets
The primary objectives of internal control include ensuring the reliability of financial reporting by presenting information fairly and in accordance with accounting frameworks like VAS Additionally, it focuses on the efficiency and effectiveness of operations, optimizing the use of human, financial, and material resources during asset investment, recording, and liquidation Lastly, internal control aims to ensure compliance with relevant laws and regulations, safeguarding the company’s integrity and legal standing.
An effective internal control system is comprised of five essential components First, the control environment is crucial, as it relies on the commitment of all company members to uphold the significance of internal controls Second, the risk assessment process involves identifying and analyzing potential risks to mitigate future threats and enhance operational efficiency Third, monitoring of controls entails regular evaluations to ensure that internal mechanisms are functioning as intended Fourth, the information system and communication encompass financial statements and established procedures for recording, processing, and reporting transactions, thereby ensuring accountability for fixed assets Lastly, control activities consist of policies and procedures that guarantee the execution of management directives.
- Regarding the proposal to purchase assets: Based on the plan developed at the beginning of the year and only authorized persons can approve the purchase of fixed assets
- Regarding the review and approval of property purchase, there is decentralization of proposal, approval, and procurement
When selecting suppliers, conducting a price survey is essential to ensure competitive pricing For high-value assets and capital construction investment projects, it is advisable to utilize public bidding to secure the best price and highest quality from suppliers.
When receiving fixed assets, an acceptance council is established, comprising members from the purchasing department, the proposed purchase department, the user department, and any specialized technical staff as necessary This council is responsible for creating an acceptance certificate for the fixed assets.
- Recording fixed assets: Based on contracts, minutes of acceptance, liquidation of contracts, invoices, etc., accountants classify fixed assets and record them according to relevant accounting standards
- Assign responsibility for asset management
- Perform annual inventory of fixed assets
- Calculation and recording of depreciation of fixed assets: Consistent and in arcording with accounting standards approved by competent authorities
Upgrading fixed assets requires significant financial investment, necessitating approval from the board of directors or management This formal process ensures that investments in fixed assets are carefully considered and aligned with the organization's strategic goals.
Each year, it is essential to evaluate the efficiency and technical condition of fixed assets to determine their usability Reports indicate the presence of unnecessary fixed assets that are pending liquidation by the appropriate authority.
( BOD/BOM/ Board of Member)
To ensure accurate liquidation of fixed assets, enterprises must require the user department to initiate the liquidation request, thereby minimizing the risk of errors regarding the asset in question The process should include a decentralized approval system for liquidated assets Additionally, a comprehensive liquidation record must be maintained, detailing the asset's name, historical cost, accumulated depreciation, technical condition, and recoverable value, to safeguard against potential violations.
- General objective of auditing financial statements
Ensure the accuracy of financial statements by verifying they are free from significant misstatements and comply with current regulations The audit firm meticulously examines the enterprise's financial accounts to provide reliable information, enabling stakeholders to make informed decisions.
AUDIT PROCESS OF FIXED ASSETS OF BAKER TILLY A&C COMPANY 7 2.1 Introduction of the company
History of establishment and development of Baker Tilly A&C
One of the top independent auditing firms in Vietnam's auditing sector, A&C Auditing and Consulting Co., Ltd was founded under Ministry of Finance Decision No
On March 26, 1992, the Southern Branch of Vietnam Auditing Company (VACO) was established under Decision No 140/TC/QD/TCCB Subsequently, on February 13, 1995, this branch was rebranded as A&C Auditing and Consulting Company through Decision No 107/TC/QD/TCCB issued by the Minister of Finance.
A&C Auditing and Consulting Co., Ltd, established in 1992, stands out as one of Vietnam's leading independent audit firms and is recognized for being the first company to successfully navigate two ownership transformations in compliance with legal and Ministry of Finance regulations.
Established in 1992 as a state-owned enterprise under the Ministry of Finance, A&C Auditing and Consulting Company transitioned to a State-owned Joint Stock Company on December 9, 2003, following Decision No 1962/QD-BTC issued by the Ministry of Finance on June 30, 2003.
Founded in 2003, A&C Auditing and Consulting Joint Stock Company operates under business registration certificate No 4103001964, issued by the Department of Planning and Investment of Ho Chi Minh City.
A&C Auditing and Consulting Joint Stock Corporation joined HLB International, a global accounting, auditing, and consulting company with headquarters in the UK, as an official member in January 2004
A&C Securities Auditing and Consulting Joint Stock Company was among the first auditing firms authorized by the State Securities Commission to conduct audits for securities issuance and trading organizations Additionally, the firm received approval from the State Bank on September 22.
In 2004, the Ministry of Finance issued Decision No 76/2004/QD-BTC, establishing regulations for the selection of audit companies approved for issuers, listing organizations, and securities trading entities in Vietnam, thereby allowing audits of commercial banks and lending institutions.
According to the business registration certificate No 4102047448 issued by the
In 2007, the Department of Planning and Investment of Ho Chi Minh City approved the transformation of A&C from a joint stock company to a limited liability company with two or more members, now known as A&C Auditing and Consulting Company Limited, in accordance with Decree No 105/2004/ND-CP.
CP and 133/2005/ND-CP of the government on independent audit
In May 2010, A&C Auditing and Consulting Company Limited became an official member of Baker Tilly International, a leading global organization ranked among the top 10 in accounting, auditing, and consulting, generating an impressive annual revenue of $3.9 billion With a workforce of 36,300 professionals across 122 member firms in over 146 countries, Baker Tilly International is headquartered at Juxon House, 100 St Paul's Churchyard, London, EC4M 8BU, United Kingdom.
After a long time of operation, A&C has developed and expanded its network with branches located in major cities throughout the country: Hanoi, Nha Trang, Can Tho
In March 2015, A&C excellently obtained the certificate of Top 10 Most Trusted Enterprises in Vietnam granted by the Scientific Center for B kusiness Credit
Appraisal and maintained the title for the next 2 years
Up to now, after more than 30 years of operation, A&C has continuously grown in quantity and quality of services provided domestically and internationally and achieved certain achievements in the industry
- Licensed by the State Securities Commission to audit joint stock companies listed on Vietnam's stock market, public companies and securities companies
- The State Bank of Vietnam permits the audit of banks and credit institutions operating in Vietnam
- Non-governmental organizations allow audit of projects funded by these
- Being a collective member of the Vietnam Association of Certified Public Accountants (VACPA); Member of Vietnam Business Club (VBC) and
Collective member of Association of these Organizations Vietnam Tax
Company type
Baker Tilly A&C, officially known as A&C Auditing and Consulting Company Limited, is a limited liability company with two or more members It is registered under business certificate No 4102047448, issued by the Department of Planning and Investment in Ho Chi Minh City.
Company size
With over 30 years of experience, Baker Tilly A&C has established itself as a trusted audit and consulting service provider, boasting branches in key economic hubs such as Ho Chi Minh City, Hanoi, Nha Trang, and Can Tho The firm remains committed to delivering exceptional services to businesses nationwide.
- 02 Truong Son, Ward 2, Tan Binh District, HCMC
- 40 Giang Vo, Cat Linh Ward, Dong Da District, City Hanoi
- I5-13, Vo Nguyen Giap Street, Phu Thu Ward, Cai Rang District, Can Tho
- Lot STH 06A.01 Street 13, Urban Area Le Hong Phong II, Phuoc Hai Ward, Nha Trang
Field of activity
Auditing financial statements is considered a central activity of A&C A&C always wants to bring the best service quality
The auditing firm is built on the core principle:
- Comply with Vietnamese and international standards and practices
- Comply with the requirements of professional ethical standards:
Independence, Integrity, Objectivity, prudence, and confidentiality of information obtained during the audit
- Comply with laws and internal regulations
- In line with the business practice of the enterprise
A&C's audit process enhances internal control systems, accounting organization, and financial management for enterprises while offering valuable information and consulting services Additionally, A&C plays a crucial role in safeguarding businesses' legal rights and legitimate interests.
In addition to the regular financial statement audit, A&C also provides on-demand services such as internal audits, performance audits, compliance audits, and financial information audits
- Tax consulting: support tax declaration and finalization, tax advice and review compliance, tax inspection support, tax planning
- Consultancy on determining associated transaction price: planning and preparing appropriate transfer pricing documents, identifying risks, and managing associated transaction prices,
- Operational consulting: developing operating regulations, internal control processes and systems, capital budget planning, financial strategy consulting and cash flow management, operational risk consulting
- Business consulting: investment project appraisal, business restructuring, mergers and acquisitions consulting,
Navigating the complex and ever-evolving legal landscape can be time-consuming and resource-intensive for businesses, often leading to delays in implementing necessary legal updates Outsourcing legal services offers a practical solution, allowing companies to focus on their core operations without the burden of legal concerns A&C recognizes this need and provides a range of legal services, including investment and business establishment advice, trade regulations, labor law guidance, and consultation on various legal matters.
Dong Khoi Accounting Services Co., Ltd offers expert accounting services backed by a team with extensive knowledge of both Vietnamese and international practices With years of practical experience in various enterprises, our services are designed to meet and exceed client expectations.
- Record accounting books, and prepare financial statements, tax reports, and other reports at the request of clients
- Help to convert financial statements, the Vietnamese accounting system into a form suitable for widely accepted accounting practices
- Organize training and recruitment of accounting personnel according to the requirements of the business
Management structure
Nha Trang branch Hanoi branch
Can Tho branch corporate office financial statement audit block consulting block basic construction audit block
Figure 2 The organizational chart of audited financial statements at the company's office
Baker Tilly A&C implements the sample audit program of VACPA (Vietnam
Association of Certified Public Accountants) and is regularly updated.
Audit tools
Baker Tilly leverages ACFMS software to enhance the efficiency of its auditors This innovative tool streamlines audit management, enabling auditors to collaborate seamlessly and track each other's progress, ultimately leading to more effective audit control.
AUDIT PROCESS IN AUDITING THE FINANCIAL STATEMENTS OF A&C COMPANY
When evaluating new clients for an audit, it is essential to assess their reasons for requesting the audit, along with their business and financial conditions Additionally, consider the integrity of the client's management, conduct a preliminary assessment of materiality, and identify potential risks associated with the client's business activities to make an informed decision on whether to accept or reject the audit.
For previous clients, it is essential to review the audit contract to determine if any modifications are necessary, particularly in cases of disagreement regarding the audit's scope If the auditor agrees to the audit terms, you can move forward to the next phase.
The audit firm needs to estimate the complexity of the audit, then select the appropriate staff to prepare for the audit
Following the meticulous preparation of personnel and contract signing, the Company directed its efforts towards critical operations, including comprehending legal documents, analyzing the business environment, and assessing the internal control and accounting systems This involved a thorough evaluation of applied accounting policies, internal rules, and regulations, culminating in the Auditor's development of a comprehensive audit strategy and detailed audit program.
Based on the detailed audit program, the auditors perform the audit procedures
- Tests of controls to evaluate the effectiveness of the client's internal control system
Analytical procedures involve examining data relationships to detect trends and unusual signals, which helps assess risks and pinpoint material misstatements This approach enables the drawing of significant conclusions without the need to test an excessive number of samples.
- Substantive procedures (to check details of transactions, account balances, etc.)
Going into the actual audit at the enterprise, the auditor must do the following specific tasks:
- Engaging in physical inventory of items such as money, goods, finished products, semi-finished products, production tools, fixed assets, etc at the client's business and recording it
- Examine the arising transactions that increase and decrease over time
To ensure accuracy in financial reporting, it is essential to verify and reconcile balances across various accounting records, including expense accounting books, general accounting books, and the general journal Additionally, comparisons should be made with the balance of arising numbers, as well as the audited financial statements from both the current and previous years, along with the depreciation spreadsheet for the audited year and the prior year.
- Income from checking and comparing contract documents, invoices, acceptance minutes, liquidation minutes, payment slips, receipts, bank debt statements, related party letters of confirmation, client interviews, and so on
- Discuss further issues, additional entries, and adjustments with client (if any) 2.2.4 End of audit:
Upon concluding the audit process, the Auditor compiles a "summary of audit results" table, which reflects the findings from the management and inspection of fixed assets accounting data This summary is derived from meticulously completed working papers that provide accurate evidence.
The audit results summary clearly shows:
- Non-material misstatements must be adjusted and then compared to the amount of misstatement that can be ignored to determine if they are acceptable or not
- Whether the total number of misstatements discovered during the audit surpasses the materiality of the financial statements
- Causes of deviation (if any) and adjustment entries
- Auditor's opinion on the client's internal control system
- Excluding factors noted by the auditor (if any)
- Evaluation of the objective of the audit (passed or not achieved).
Illustrate the process of auditing financial statements of fixed assets accounts at company A&C applied to company A
The process of auditing the financial statements of fixed assets at company A&C applied to company A is described in diagram 3
Figure 4 Fixed asset audit process
2.3.1.1 Getting understanding of client’s business environment, operation and process General information about customers:
- Type of business: Limited (with two or more members)
- Business registration certificate No 36007536XX issued on May 22, 2019 by the Department of Planning and Investment of Dong Nai Province
A&C has previously audited the financial statements of Company A, which means they are exempt from first-year audit procedures However, as a long-standing client, A&C is still required to conduct research in accordance with Appendix 01-5.03 regarding client acceptance Appendix 01 provides essential information relevant to this process.
The Company has a change in the Board of members/management, the Board of
The Board of Directors (BOD) and Board of Management (BOM) have no negative media coverage regarding clients Audited financial statements are utilized for consolidating financial reports, meeting management requirements, and complying with tax authority submissions The company is integrated within the Ho Chi Minh City Union of Commercial.
Cooperatives, with mutual investment, trading, and service provision activities After getting to know the client, the auditor decides to continue accepting the client, and sign the engagement letter
2.3.2.1 Prepare documents for the audit of fixed assets
After signing the contract, A&C company requires the company to provide the following documents:
- Ledger, general diary, general ledger, expense book related to fixed assets, expense book of construction and dismantling, shall be collected separately for each work
- Report of increase and decrease of fixed assets during the year
The summary of fixed assets includes key elements such as historical cost, annual depreciation, accumulated depreciation, and the residual value, detailing both the beginning and ending balances for each asset type.
- Spreadsheet and amortization for the year
- Legal documents related to fixed assets, capital construction, increase or decrease during the year such as construction permits, cost estimates, contracts, handover minutes, contract liquidation minutes bills, payment vouchers…
- Set of inventory records at the end of the year
- The records and documents are kept by the auditor according to regulations
2.3.2.2 Accounting policies of fixed assets apply at company A
Company A classifies Fixed assets as follows:
Type 1: Buildings and structures: an enterprise's fixed assets formed after the construction process such as offices, warehouses, fences,
Type 2: Machinery and equipment are all types of machinery and equipment used in business activities of enterprises such as specialized machinery, working equipment, oil and gas rigs, cranes, and ropes,…
Type 3: Means of transport, transmission equipment: means of transport include means of transport by rail, water, road and air, pipelines and transmission equipment such as information systems, electrical systems, water pipelines, conveyors
Type 4: Management equipment and tools: equipment and tools used in the management of business activities of enterprises such as computers for management, electronic and measuring devices and instruments,…
Type 5: other fixed assets: assets that do not fall into the above 4 categories
- Intangible fixed assets: land use rights
- Enterprise don't have leases assets
Accounting policies applied to fixed assets:
Tangible fixed assets are recorded at their historical cost minus accumulated depreciation, which includes all expenses incurred by the Branch to prepare these assets for use Costs incurred after initial recognition are only added to the asset's value if they are expected to enhance future economic benefits; otherwise, they are classified as production and business expenses for the year Upon the sale or disposal of tangible fixed assets, their cost and accumulated depreciation are removed from the books, with any resulting gain or loss recognized in the income statement These assets are depreciated using a straight-line method over their estimated useful lives.
Type of fixed asset Number of years
Equipment and tools for management 03 – 10
- The accounting period of company A is from January 1 to December 31 every year
2.3.2.3 Developing audit Plan, audit program applied to company A
After finalizing the audit contract and collecting essential client information and documents, the Company formulates a comprehensive audit plan outlining the audit strategy, scope, and considerations for independence, as well as identifying risks such as misstatements and fraud Auditors are then assigned to oversee the audit activities, with the team leader communicating the work plan to all team members.
- In general, the internal control system of Company A is evaluated by the auditors quite well No fraud has been detected in the past
The auditor focuses on identifying risks associated with the import and export processes, revenue, and asset items for the enterprise operating in commerce In the current year, incurred costs rose by over 6 billion VND due to completed capital construction investments Additionally, there was a cost reduction of more than 1.2 billion VND, although there remain unspecified risks linked to potential misstatements or fraudulent activities.
See Appendix 02 – 5.02: Audit strategy and plan
At A&C Company, the audit program is developed by the team leader according to the model audit program of the Vietnam Association of Certified Public Accountants
Specifically, the audit program on fixed assets, contruction in progress applied at
Company A was developed by A&C company in according to Appendix BHc: It clearly states:
- Owned by the enterprise (Rights and obligations)
- Cost and depreciation are recorded fully, accurately and in the correct accounting period (Accuracy, valuation and allocation)
- All fixed assets that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included (Completeness)
- Fixed Assets have been recorded in the proper accounts (Classification)
- Fixed assets presented in the financial statements in accordance with the applicable financial reporting framework (Presentation)
The audit program helps the audit to have a scientific work order to avoid overlapping, making it easier to assign the auditors
The audit program is illustrated by Appendix 03 – BHc: Audit program
2.3.2.4 Determine the level of materiality
The audit team leader, after discussing with the Director/Chairman and the Deputy
General Director in charge, will determine the materiality of the entire financial statements
At A&C, the ratios used to calculate materiality are as follows:
- Determine overall materiality = item selected’s value * percentage
- Percentage of individual materiality over overall materiality is 50% - 75% Which ratio to choose depends on the auditor's judgment for each specific client
- Insignificant misstatments threshold = 4% of performance materiality
At Company A, the auditor determines overall materiality based on 10% of profit before tax
A&C Company has established a pre-tax profit target with a permissible ratio of 10% This ratio may vary depending on the use of different financial indicators within the established framework.
For example: If it is:
- Revenue target, the ratio is 0.5 -3%
- Net assets: the ratio is 1-5%…
BCTC năm nay Current year financial statements
Dự kiến năm nay (Ghi chú 3) / Current year budget (Note 3)
Ngưỡng sai sót có thể bỏ qua (4% của K) / Threshold (4% of K)
Giai đoạn thực hiện và đưa ra ý kiến / Execution and opinion stage
Mức trọng yếu / Materiality level
Giai đoạn lập kế hoạch [I] / Planning stage [I]
Tỷ lệ mức trọng yếu thực hiện trên mức trọng yếu tổng thể (50% - 75%) [J] /
Percentage of individual materiality over overall materiality (50% - 75%) [J]
Mức trọng yếu thực hiện [K] / Performance materiality [K]
Doanh thu thuần / Net sales
Lợi nhuận trước thuế * / Pre-tax profit *
Tài sản thuần / Net assets
BCTC năm trước / Prior year's financial statements
Tổng tài sản / Total assets
The chosen criterion for determining materiality typically reflects significant interest among stakeholders, as any misstatements can influence the decision-making processes of users relying on financial reporting information.
Auditors make tables according to Appendix 04 - 5.09, 5.10: Understanding internal control
When determining the suitable audit method for sample size based on assessed risks, the team leader will analyze the client's business to form a preliminary conclusion regarding the audit area's risk level, while also considering risk mitigation factors and relevant samples.
The auditor evaluates the risks of material misstatement—categorized as high, medium, or low—in each audit area, considering the specific risk factors involved A&C Auditing Company Limited classifies the primary risks for assessment as inherent risk, analytical risk (which is part of detection risk), and control risk.
This client's fixed asset item is not material, so the auditor did not learn about the internal control process of this client
See Appendix 04 – 5.09, 5.10 – Understanding internal control
Because auditor did not learn about the internal control of fixed assets so there are no test of control
2.3.3.2 Audit program on fixed assets is applied at A&C
* Based on the audit program for fixed asset items (Appendix 03-BHc: audit program), the auditors shall carry out the following audit procedures:
- Lead schedule (for general description of existing fixed assets)
- Accounting policies (learn about company A's accounting policies for fixed assets)
- Analytical procedures (to achieve completeness, existence, accuracy)
Substantive procedures are essential for ensuring the integrity of financial statements BH2 focuses on comparing data to achieve completeness and accuracy BH3 addresses the increase and decrease of fixed assets, which is crucial for verifying existence, rights and obligations, completeness, accuracy, valuation and allocation, and classification Specifically, BH3.1 examines the depreciation of fixed assets to meet the goals of existence, rights and obligations, accuracy, and valuation and allocation Additionally, BH4.1 assesses the increase or decrease of construction in progress to ensure accurate financial reporting.
This article discusses the importance of fixed assets and construction in progress, emphasizing the need for accurate information regarding their mortgage status and commitments for purchase to ensure completeness and uphold rights and obligations Additionally, it highlights the significance of reviewing events after the balance sheet date to maintain completeness, accuracy, existence, valuation, and location of assets.
- Scrutitny : Ensure suspicious transactions have been fully detected, checked and explained (in order to achieve accuracy and classification goals)
- Presentation and disclosure (to achieve the goal of completeness, classification)
- This table shows the complete picture of fixed assets, including the beginning and final numbers of historical costs, accumulated depreciation, and construction in process
- Show what kinds of assets the company currently possesses
- Displays the fluctuation of historical cost, depreciation value, and construction in progress during the audit year
What procedures should be carried out:
- Create a summary of fixed assets and construction in progress using the balance sheet data
- Reconcile the opening balance of the enterprise's accounting books with the audited previous year's financial statements
- Reconcile the ending balance with the arising ledger and balance sheet Normally, auditors will get data from 5-6 administrative files, sheet FS
- The company has updated the data, the opening number of the period matches the ending number of the previous year
- The number of arising increases, arising decreases, and the number at the end of the audit year matches exactly on the detailed book
Table 2 BH0 Summary sheet of fixed assets and construction in progress
Table 3 BH0.1 Increase or decrease of tangible fixed assets
Table 4 BH0.3 Increase or decrease of intangible fixed assets
Table 5 BH0.4 Increase or decrease in unfinished construction assets
Procedure 2: Check the accounting policy of fixed assets apply
- Ensure that the policies applied by the entity are consistent with the accounting policies issued by the government
- Ensure consistency between accounting periods
What procedures should be carried out:
- Interview with accounting staff and relevant people
- Select a test sample on how to determine historical cost, Depreciation method Conclude:
- Accounting for tangible fixed assets complies with VAS 03, intangible fixed assets comply with VAS 04, the entity has no financial lease transactions
- Accounting for fixed assets applies Circular 200/2014/TT-BTC and Circular 45/2013/TT-BTC
- Residual value = historical cost - accumulated depreciation
- Record keeping on the principle of continuity and consistency
- Recorded a complete fixed asset book, including a general accounting book, a detailed accounting book, a fixed asset card that is tracked separately for each asset
- The entity has applied accounting policies in accordance with regulations
See Section II, Appendix 03 – BHc: Audit Program
The auditor utilizes the newly prepared Summary Table to analyze fluctuations in fixed assets and construction in progress By integrating this data with their understanding of the entity's operations, the auditor assesses whether these changes align with the previous year's depreciation expense, evaluating the impact of any increases or decreases in fixed assets on depreciation costs.
- Review the overall assessment of fluctuation of fixed assets and construction in progress
What procedures should be carried out:
COMMENTS AND RECOMMENDATIONS
3.1.1 About facilities, organization and personnel
A&C Company, part of the Baker Tilly network, benefits from a global alliance of independent accounting and business consulting firms This affiliation enables A&C to expand its service offerings internationally and establish a commercial presence in numerous countries.
- A&C Company is an official member of HLB International - an international organization of accounting, auditing and consulting based in the United
A&C Company boasts a skilled team of auditors, appraisers, financial experts, and consultants with extensive expertise Currently, the company serves over 2,000 diverse clients across various industries, reflecting its strong reputation and commitment to excellence With a focus on growth and client satisfaction, A&C Company is poised for continued expansion in the future.
A&C Company consistently updates and distributes essential legal documents while offering training courses designed to enhance the professional qualifications and skills of its staff, ensuring they meet the growing audit demands of today's economy.
- The company's office is a spacious and superficial building, the face of the company, creating a good impression when clients contact for work as well as trust to choose as a partner
3.1.2 About the process of auditing the fixed assets item in the audit of financial statements
Fixed assets represent a significant portion of a company's balance sheet, influencing various cost elements and overall business performance While changes in fixed assets are generally minimal for established enterprises, any fluctuations can have substantial financial implications Given the potential for risks and fraudulent activities associated with these transactions, A&C emphasizes thorough scrutiny during audits of fixed assets.
Participating in the audit process reveals significant advantages, particularly in the auditing of fixed assets, highlighting its overall effectiveness and efficiency.
The Company has strictly applied the provisions of Vietnamese Standards on
Effective planning and a well-structured audit program are crucial for the overall success of the audit process The quality of the audit heavily relies on the planning content and the guidance it provides to auditors during their evaluations Consequently, auditors must adhere to Vietnamese Auditing Standard No 300 (VSA300) The steps outlined in the audit program are carefully crafted based on the VACPA sample audit program developed by A&C, ensuring a comprehensive approach for auditors in their work.
The company prioritizes gathering detailed information about new clients, while clients themselves meticulously assess any changes in their organizational structure, particularly regarding the board of directors Such insights assist auditors in evaluating the audit's complexity, enabling them to create more effective audit plans.
Leveraging the Baker Tilly network and HLB International, A&C provides clients with updated macroeconomic insights and trends that impact both local and global operations The leadership team's extensive experience and the auditor's deep knowledge enable them to assess potential risks effectively, ensuring the development of tailored audit procedures.
Evaluate the client's internal control system
Evaluating a client's internal control system is crucial for auditors, as it aids in identifying potential risks and developing an effective audit program This assessment not only streamlines the audit process but also assists companies in negotiating financial statement audit service prices Experience shows that clients with robust internal controls benefit from quicker and more cost-effective audits compared to those with weaker systems.
Of course, it also depends on many other factors such as the size, type and form of the business
Materiality is determined flexibly, influenced by the business type, size, and the auditor's experience and understanding of client needs It relies on the company's audit documentation guidelines, where auditors select criteria such as revenue, profit before tax, total assets, or equity, and apply suitable ratios within acceptable limits.
The audit plan's structured content includes a comprehensive audit program featuring specific tables for each operational area, clearly outlining objectives, tasks, and expected outcomes This approach facilitates new auditors and interns in their implementation, enhancing the efficiency of audit assistants and allowing the lead auditor to focus on more complex aspects of the audit process.
- The procedures for checking, comparing from summarizing, and comparing details are relatively complete, making it easy to detect deviations
During the review process, auditors' working papers, post-cut-off date transactions, adjusted entries, and unadjusted misstatements undergo scrutiny at three hierarchical levels: team leader, Director/Manager, and Deputy General Director/General Director, highlighting the rigorous nature of this procedure.
3.2.1 About the process of auditing the fixed assets item in the audit of financial statements
During the planning of an audit program for Company A's fixed assets, the auditor neglected to evaluate the internal control system associated with these assets This oversight hindered the ability to identify risks, making it challenging to assess the overall risk level and conduct suitable control tests Notably, in WP REF 5.02, the identification of general risks fails to address specific risks related to the audit of fixed assets, as highlighted in item B, clause 2 of Appendix 02 – 5.02.
Due to the client's nature as a retail commercial business, auditors primarily concentrate on key areas such as revenue, cost of goods sold, and inventory management Consequently, the fluctuations in fixed assets, payables to vendors, and sales deductions may be minimal, leading auditors to overlook a thorough examination of the internal control system related to fixed assets.
In addition, in the planning phase, the information is based on model questions
Especially, the assessment of the internal control system is still simple, does not distinguish between large and small enterprises, so it is not suitable
- When researching clients, it is mainly interview and observation, while these two procedures are not accurate, so it is easy to lead to wrong judgment
One key limitation of analytical procedures for fixed assets is their reliance on horizontal analysis, which compares fluctuations between accounting periods This approach often overlooks vertical analysis, which examines the relationship between fixed asset items and other indicators, thereby failing to assess the efficiency of fixed asset utilization within the enterprise.
See Section III in Appendix 03 – BHc: audit program for fixed assets and capital construction in progress prepared by A&C for fixed asset audit applicable to company
Looking at the analytical procedure we do not see that the vertical analysis procedure is applied