6 CHAPTER 2: GENERAL AUDIT PROCEDURES AT DELOITTE VIETNAM AND AUDIT PROCEDURES FOR FIXED ASSETS AT ABC COMPANY AND XYZ COMPANY .... 9 2.1 General audit procedures for financial statement
Research rationales
Fixed assets are crucial for companies as they facilitate the production of goods and services that drive income generation These non-current assets typically represent a significant portion of total assets on the financial position statement, particularly for manufacturing firms Additionally, the annual depreciation and amortization expenses are vital, as they directly influence how accountants calculate net income for the financial period.
Depreciation and amortization expenses carry significant risk and are strictly regulated by the Ministry of Finance Given the importance of fixed assets and their associated expenses to businesses, the internship report will focus on the "Audit Procedure for Fixed Assets by Deloitte."
Research objectives
• Describe general audit procedures at Deloitte Vietnam
• Describe fixed asset audit procedures at ABC Company
• Analyzing and assessing for the audit procedure for fixed assets at Deloitte
Research subjects
• The general audit procedures in Deloitte Vietnam
• The Deloitte’s audit procedure for fixed assets at ABC Company.
Research scope and limitations
This research examines fixed asset procedures, utilizing data primarily sourced from clients' general and subsidiary ledgers for the fiscal year 2020 Due to Deloitte's commitment to confidentiality and data protection agreements with clients, the information presented is for illustrative purposes only, potentially limiting the realism of the findings.
Research structure
The structure of this procedure is as follows:
Chapter 1: General information about Deloitte Limited Company in Vietnam Chapter 2: General audit procedures and audit procedure for fixed assets Chapter 3: Conclusion and recommendations
INTRODUCTION TO DELOITTE VIETNAM
Introduction to Deloitte Vietnam
Deloitte Listed Company, a leader in consulting and auditing services in Vietnam for over 30 years, is part of the esteemed Deloitte Global network With a workforce exceeding 1,000 employees across offices in Hanoi and Ho Chi Minh City, Deloitte Vietnam boasts a team well-versed in the legal and business landscape of the country, leveraging the strengths of Deloitte Asia Pacific.
The company’s name was accepted
Address 15 th Floor, Vinaconex Tower, 34 Lang Ha, Lang Ha Ward,
Dong Da District, Hanoi Capital
Type of business Limited Liability Company with more than two members
Legal representative Ms Ha Thi Thu Thanh – Chairman of the Board
Mr Pham Van Thinh – General Director
Figure 1: Information about Deloitte Vietnam
VACO was etablished by Minister of
VACO co-operate with DeloitteTouche Tohmatsu
Branch’s name Branch of Deloitte Limited Liability Vietnam
Address 18 th Floor, Times Square Tower, 57-69F Dong Khoi Street,
Ben Nghe Ward, District 1, Ho Chi Minh City
Legal representative Mr Vo Thai Hoa
Figure 2: Branch of Deloitte Vietnam in Ho Chi Minh City
❖ History and development of Deloitte Vietnam
Figure 3: History and Development of Deloitte Vietnam
Deloitte is committed to delivering exceptional service while promoting an inclusive and supportive environment, emphasizing integrity and collaboration In alignment with these principles, Deloitte Vietnam has established core values that guide decision-making and actions towards achieving shared objectives.
Deloitte excels in the industry through its unparalleled scale, expertise, and service, while actively reinvesting in future growth By contributing to communities and creating opportunities, Deloitte is committed to fostering a better and more sustainable world.
By consistently upholding integrity and ethics in action, Deloitte has won the trust of clients, regulators and the public
• Take care of each other
The culture of Deloitte is “We are all this together”, all employees of Deloitte always take care and support each other, prioritizing respect, fairness and development
In a multinational working environment like Deloitte, always focuses on
Fostering a diverse and inclusive culture is essential for attracting top talent globally By committing to equal opportunities for all employees, organizations can enhance career development and create a supportive work environment.
Adopt a collaborative mindset that spans various businesses, geographies, and skill sets to achieve a significant, measurable impact At Deloitte, success is assessed not only through metrics but also through the strength of relationships formed and the level of innovation introduced to address challenges.
• Audit and Assurance: independence audit, provide review services for the FSs
• Financial Advisory: corporate finance consulting (verification, sales), valuation, restructuring services, legal investigation consulting and dispute resolution / analysis
• Risk Advisory: Consulting business strategy and risk, controlling, assessing cyber risks, information systems
• Tax: Corporate tax, indirect tax, tax services related to foreign professionals working in Vietnam, services related to transfer pricing
• Other services related to education training
Audit and Assurance is one of the highest proportions in revenue of Deloitte Vietnam.
Organizational Structure of Deloitte Vietnam HCM Brach
Figure 4: Organizational structure of Deloitte Vietnam (HCM)
▪ Audit and Assurance Department in HCM
Figure 5: Organizational structure of Audit and Assurance Department
During fieldwork, the engagement team typically consists of one manager, one to two seniors, one to two assistants, and one to two interns, with staff selection managed randomly by Ms Nguyen Thi Binh, the assistant, and the engagement manager If the job has undergone an interim audit, the same team will remain for the final audit Once Ms Binh assigns the staff, their allocations are entered into SAP (Deloitte's software), allowing for easy access and tracking of their assignments within the system.
A senior is responsible for directly assigning tasks to assistants and interns Prior to fieldwork, the senior distributes task allocations and previous year's working papers for staff review.
Interns typically engage in preparing various financial documents, including cash management, receivables and payables, fixed assets, and income and expense reports Additionally, they are responsible for compiling hard copies of documentation for each engagement to ensure thorough record-keeping and compliance.
GENERAL AUDIT PROCEDURES AT DELOITTE VIETNAM AND
General audit procedures for financial statements at Deloitte Vietnam
Deloitte designs an Engagement Management System (EMS) software as the foundation for all Deloitte's financial statements audits worldwide with 4 main parts:
Each part of Deloitte Vietnam's audit guidelines has been developed based on the requirements of the International Auditing Standards
The company's audit process specific steps as follows:
Figure 6: Audit procedure for FSs at Deloitte Vietnam
Source: EMS of Deloitte Vietnam
Step Content Person in charge
The manager evaluates the audit engagement risk associated with new or returning customers before deciding to accept the contract Upon completion of this assessment, if the decision is made to proceed with the audit, a contract will be prepared that outlines specific terms to mitigate risks effectively.
In this phase, the manager gains insights into the customer’s achievements while also understanding their goals, strategies, and desires.
When there is an agreement and agreement between the Firm and the Client, the auditor will set up an audit team to prepare to conduct the audit as planned
Gather essential information about clients, including stakeholders influencing company operations, minutes from key meetings among co-owners, relevant documents related to the company's objectives and strategies, details on operational processes, updates on personnel changes, techniques employed, and the IT environment utilized within the company.
Learn about the internal control system and identify possible errors and frauds
In this phase, the auditor examines the internal control systems associated with each operational and accounting cycle to identify potential errors and fraudulent activities This investigation also encompasses an analysis of the client's software systems utilized for the preparation and presentation of financial statements.
Set up an audit program
In this step, the auditor will proceed:
When engaging with customers, it is crucial to address key topics such as the current business situation, company size, and operating environment for new clients, while also providing updates on any changes from the previous year for existing customers.
Establish materiality: In Deloitte Vietnam, there are 3 main levels of importance:
Understand and evaluate the main types of business and related control procedures
The auditor examines both common and infrequent transaction types, analyzes their impact on financial statements, establishes control tests to differentiate between business types, and gains insights into computer accounting systems.
Categorize and update assessments of the internal control system, including
Senior understanding of the lowest to highest control risks (not just walk-through testing)
Evaluate risks Estimate the effects of control risk on the financial statements
Using analytical procedures to classify and evaluate the reasonableness of account balances and items
Obtain data to check the truthfulness and reasonableness of the item The implementation method can be detailed balance check, detailed professional check, and so on
After performing all the procedure as well as discussing with the the engagement team about the clients Manager who is give the opinion on the audit report
Evaluating the working of all members in the engagement Give the feedback for the team for the next audit
Table 1: Describe the duties of the audit engagement
Materiality refers to the threshold at which the financial statements could mislead users, without significantly impacting their decision-making Auditors determine this maximum level of materiality, ensuring that the overall integrity of the financial statements is maintained while adhering to standard materiality levels.
• 5% - 10% profit before tax from continuing operations
• 0.8% – 2% Revenue (may extend up to 5% in consideration of the size of the entity)
• 1% - 3% of total equity or net assets
• 3% - 5% of cash flows from operations
This ratio depends on a number of other factors, such as the effectiveness of the internal control system
To make a determination of performance materiality, we may consider factors such as the following:
Our understanding of the entity and its environment
The reliability of the entity’s internal control over financial reporting (e.g., as the reliability of internal control decreases, there may be an increased likelihood of significant misstatements occurring)
Higher fraud risk or ineffective entity-level controls (e.g., tone at top, ineffective governance controls, competency of accounting personnel, difficulties in obtaining audit evidence)
The assessment of risks of material misstatement is particularly critical for entities with a history of misstatements, whether corrected or uncorrected It is essential to evaluate whether there is an increased prevalence of significant risks at the higher end of the spectrum.
The likelihood that misstatements from the prior period will recur in the current period Management’s willingness to investigate and correct misstatements
An expected increase in accounting issues that require significant judgment and/or more judgment in estimation
High turnover of executive management or key accounting personnel
The degree of centralization and common controls/processes
Increased engagement risk (e.g., as a result of the entity’s industry, market pressures, a potential transfer of interest in the entity, an initial audit engagement)
Any changes in the business that would affect our ability to forecast potential misstatements
"Clearly trivial" does not equate to "not material." Misstatements deemed clearly trivial are significantly less severe and differ in nature from material misstatements These trivial misstatements are inconsequential, both individually and collectively, regardless of size, nature, or circumstances If there is any doubt regarding the triviality of one or more items, they should not be classified as clearly trivial.
Materiality thresholds of up to 5 percent are typically viewed as clearly trivial in audit engagements However, the engagement partner may decide on a lower threshold based on specific facts and circumstances related to the entity and the audit Key factors influencing this determination include the nature of the entity, its history of misstatements, and the number of locations involved.
Determining whether a disclosure misstatement is clearly trivial involves assessing both qualitative and quantitative factors, as each misstatement has unique characteristics Misstatements that exceed a threshold, such as 5 percent of materiality, may not always be deemed trivial Establishing a universal amount for all disclosures is impractical, necessitating an individualized evaluation for each misstatement based on specific guidance.
General fixed asset process
❖ General understanding of customers and applied accounting methods
Different types of companies exhibit unique characteristics regarding fixed assets and the accounting methods they use Consequently, auditors must tailor their plans based on the specific nature of each client company It is essential to identify key focus areas and potential risks before implementing the appropriate auditing procedures.
Specifically, the auditor needs to find out:
The type of company activities significantly influences the characteristics of fixed assets In large manufacturing firms, fixed assets primarily consist of high-value machinery that depreciates over many years and represents a substantial portion of the company's resources Conversely, service-oriented businesses, such as those in the tourism sector, typically rely on fixed assets like buildings and tourist destinations to support their operations.
General understanding of customers and applied accounting methods
Audit risk assessment Perform auditing Final audit
Customers utilize specific accounting methods for fixed assets, focusing on the recognition and capitalization of these assets Key aspects include various depreciation methods and adherence to regulations governing the purchase, sale, transfer, and liquidation of fixed assets.
• Find out what assets the company had bought and disposed of during the year, and how much is worth
After having a general understanding of the customer, the auditor assesses possible audit risks as below:
• Liquidation and sale of property is correct or not?
• Capitalized costs are properly recognized or not?
• Is the depreciation value determined in accordance with the company's intended use?
• Carried over from construction in progress to fixed assets
• Are the insurance, maintenance and repair of fixed assets allocated correctly?
• According to the Vietnam Auditing Standard No 315 (VSA 315) on auditing fixed assets, the audit objectives to ensure are:
• Existence/Occurrence: Fixed assets presented on financial statements (including financial leases) are presented at the date of financial statements
• Completeness: All fixed assets owned by the enterprise or financial lease assets are fully recognized in the financial statements at the date of financial statements
• Valuation and Allocation: All fixed assets are presented in the financial statements at fair value and the adjustments related to evaluation or amortization have been recognized as appropriate
• Rights and Obligations: All fixed assets shown in the financial statements are owned by the unit
• Presentation and Disclosure: Fixed assets and related accounts are classified and properly interpreted in accordance with the current financial statements regulations and presented in the financial statements and notes
Auditors assess the effectiveness of a company's internal control system through surveys and specific procedures Various methods are employed based on the company's nature, including observing fixed assets and evaluating the separation of management and bookkeeping functions within departments.
• Check documents, document rotation, completeness of documents, check the reliability and transparency of approvers
• Review documents on fixed assets
• Checking books, timely and fully in the recording process
The auditor is responsible for evaluating the effectiveness of the company's internal control regulations, identifying any loopholes that may pose potential risks This involves conducting a thorough assessment of the operational processes within the internal control system, utilizing questionnaires or direct surveys to gather accurate data.
Upon finalizing the fixed asset audit, the auditor will utilize the information documented in the working papers to compile the audit report and ensure accurate disclosures pertaining to fixed asset items.
Audit procedures for fixed asset by Deloitte at ABC and XYZ Company
In this article, the author explores comprehensive fixed asset procedures by examining two entrepreneurs who implemented these practices with the assistance of Deloitte Vietnam in the fiscal year 2020 To maintain client confidentiality and protect sensitive information, the names of the businesses involved will not be disclosed.
2.3.1 General information about ABC and XYZ Company
• Registered name (official name): The ABC limited liability company
• Equity ownership: Limited liability company
• Equity: According to the Company’s Investment Certificate, the Company’s investment and charter capital is VND 24,234,000,000 (equivalent USD 1,500,000) and VND 8,078,000,000 (equivalent USD 500,000), respectively
• Field of business: the tourism industry
The Company specializes in providing travel services for inbound tourists to Vietnam, including air ticket and visa services It is authorized to offer inbound tours and domestic travel services exclusively for foreign tourists coming from abroad, along with related services However, the Company is prohibited from offering domestic travel services to both Vietnamese and foreign tourists within Vietnam In 2010, the Company received approval from the Vietnam National Administration of Tourism to engage in outbound travel business.
12 April 2010) Since November 2014, the Company has ceased providing outbound tour services
➢ Fiscal year: from 01 January 2019 to 31 December 2020
The Company's financial statements are prepared in Vietnamese Dong (VND) and comply with the Vietnamese Business Accounting System and the Accounting Standards established by the Ministry of Finance.
➢ The accounting documentation system applied by the company is the general journal
• Accounting policy for fixed assets at ABC:
▪ Tangible fixed assets and depreciation
Tangible fixed assets are recorded at their acquisition cost minus accumulated depreciation, which includes the purchase price and any direct expenses necessary to prepare the assets for their intended use and location.
Tangible fixed assets are depreciated using the straight-line method over their estimated useful lives as follows:
Table 2: Depreciation period of ABC Company
Intangible asset represents computer software that is stated at cost less accumulated amortization Software is amortised using the straight-line method from two to five years
At the conclusion of each reporting period, the estimated useful lives, residual values, and depreciation methods are assessed, with any changes in estimates being applied prospectively.
The gain or loss from the disposal or retirement of property, plant, and equipment is calculated by subtracting the asset's carrying amount from the sales proceeds, with the resulting figure being recognized in profit or loss.
Figure 8: General ledger about the fixed assets of ABC
• Registered name (official name): The XYZ joined stock company
• Equity ownership: joined stock company
• Equity: According to the Company’s Investment Certificate, the Company’s investment and charter capital is VND 428,692,130,000
• Field of business: pharmaceutical industry
The Company primarily engages in the production and sale of pharmaceutical, nutritional, cosmetic, and skincare products Additionally, it imports commodities from international markets for distribution to licensed wholesalers in Vietnam Furthermore, the Company leases a portion of its factory to X Company for the manufacturing of IV solutions.
➢ Fiscal year: from 01 January 2019 to 31 December 2020
The Company's financial statements are denominated in Vietnam Dong (VND) and are prepared based on the historical cost convention They comply with Vietnamese Accounting Standards, the accounting regime for enterprises, and relevant legal regulations governing financial reporting.
➢ The accounting documentation system applied by the company is the general journal
• Accounting policy for fixed assets at XYZ:
▪ Tangible fixed assets and depreciation
Tangible fixed assets are recorded at their cost minus accumulated depreciation, which includes the purchase price and any directly related expenses necessary to prepare the assets for their intended use and location.
Tangible fixed assets are depreciated using the straight-line method over their estimated useful lives as follows:
Table 3: Depreciation period of XYZ Company
Intangible asset represents computer software that is stated at cost less accumulated amortization Software is amortised using the straight-line method basic over five years
Properties under construction for production, rental, administrative, or other purposes are recorded at cost, which encompasses all necessary expenses to develop the assets per the Company's accounting policy Depreciation for these assets begins once they are prepared for their intended use, following the same principles applied to other assets.
At the end of each reporting period, the estimated useful lives, residual values, and depreciation methods are evaluated, with any changes in estimates being applied prospectively.
The gain or loss from the disposal or retirement of property, plant, and equipment is calculated by subtracting the asset's carrying amount from the sales proceeds, and this difference is recorded in profit or loss.
Figure 9: Journal listing about fixed assets of XYZ Company
At both ABC and XYZ Company are also apply Vietnam Accounting Standard to prepare financial statement
ABC Company primarily focuses on tourism-related services, resulting in a lower asset value compared to XYZ Company, which operates in the manufacturing industry and has significant construction in progress ABC's fixed assets consist of office equipment and vehicles, while XYZ boasts a more diverse range of fixed assets, including buildings and structures, machinery and equipment, motor vehicles, and office equipment.
Revenue of ABC Company is 132,221,492,846 VND level of materiality was Deloitte established:
Deloitte decided rounded down the calculated materiality for prudence and ease of use M = 1,900,000,000 VND
- Total anticipated uncorrected misstatement = 10% M= 190,000,000 VND
Deloitte has a considered our understanding of the entity from prior years audited
In the current year, discussions with management have highlighted the associated risks and the anticipated number of uncorrected misstatements, which include carryover effects from prior periods Given the long-term nature of this engagement, we have prudently selected an anticipated uncorrected misstatement (AUM) threshold of 10% Deloitte believes that this cushion level will adequately address our scope, taking into account the latest financial statements as of December 31, 2020, and considering the timing, extent, and nature of the engagement.
- Performance Materiality (PM) = M – total AUM
The performance materiality (PM) is established below the threshold of materiality to create a safety margin This approach ensures that if misstatements are identified, we can still reasonably assure that the cumulative misstatement in the financial statements remains within the acceptable limits of materiality.
- Clearly Trivial Misstatements (CTM) = 5% Materiality = 95,000,000 VND
Revenue of XYZ Company is 203,411,583,730 VND level of materiality was Deloitte established:
Deloitte decided rounded down the calculated materiality for prudence and ease of use M = 4,000,000,000 VND
- Total anticipated uncorrected misstatement = 20% M= 800,000,000 VND
Finish the audit
Once the required procedures are completed, the data, including adjustment entries and discussions with customers, will be finalized Concurrently, the auditor will provide recommendations on these adjustment entries to help the company enhance its performance in the coming years.
The fixed asset procedures for both ABC and XYZ are largely similar; however, XYZ's implementation of detailed testing for fixed asset items is more extensive and complex This complexity necessitates that auditors effectively delegate tasks to audit assistants for thorough inspections, unlike at ABC, a small to medium-sized service company, where a single auditor can manage all fixed asset procedures independently.
The audit process varies significantly across different industries, as demonstrated by ABC in the property service sector, which primarily utilizes vehicles and computer software without any construction in progress In contrast, XYZ, operating in the manufacturing sector, possesses a larger total of fixed assets and includes additional construction in progress (CIP) This necessitates a division of responsibilities among team leaders to manage both tangible and intangible assets, as well as CIP, effectively.
COMMENTS AND RECOMMENDATIONS
Comment on the audit procedures for fixed assets at Deloitte Vietnam
Year-end financial statements reveal a business's profit or loss and overall financial health, serving as essential tools for government performance management and providing investors with crucial insights for informed investment decisions that drive economic development Consequently, auditing these financial statements annually is vital in today's market economy Additionally, the proportion of fixed assets plays a significant role in both the company's asset composition and its overall costs.
Deloitte has built a specific audit process, and orientation related to the things what they do
Clear segregation of duties will be established based on the competencies and experience of each member of the engagement team, with higher-level members assuming more significant and riskier roles.
The fixed asset performance audit plan is developed by auditors through a comprehensive understanding of the business's current situation, growth objectives, and key challenges This process helps identify critical issues and unusual fluctuations in fixed assets Additionally, auditors assess high-risk areas, establish materiality levels, determine the sample size for selection, and outline the analytical procedures to be executed.
Deloitte often selects team members for performance audit engagements who have previously audited the client, leveraging their existing understanding of the client's operations However, this practice can introduce a familiarity risk, as it fosters a close relationship between the auditors and the clients.
The audit team encounters significant challenges in fulfilling their engagement, as some auditors must handle high-risk tasks that exceed their capacity and experience If materiality risks are not identified promptly, it could adversely affect the report's conclusions and damage Deloitte's reputation in the long run.
Deloitte's audit procedure for fixed assets involves a thorough general analysis, including the comparison and examination of fixed asset movements, recalculation of accounting estimates, and assessment of depreciation costs The process also entails gathering evidence to illustrate fluctuations and account balances, although it has yet to be benchmarked against industry averages By utilizing financial ratios, auditors can evaluate asset performance, providing a comprehensive perspective on corporate performance and strategies related to fixed asset utilization.
Solutions to completeness the fixed assets procedure in auditing financial statement 43
Assessing fixed assets presents significant challenges for auditors due to the inherent complexity and low accuracy levels To enhance the quality of the audit engagement, it is crucial to involve an expert with professional judgment in the relevant field During the planning phase, auditors must evaluate the intricacies of fixed assets and consider the necessity of external expert opinions Utilizing an external expert's insights serves as a valuable form of evidence, enabling auditors to make more precise assessments of audit data related to fixed assets.
When inviting experts, it is essential to evaluate their qualifications and objectivity, as well as the associated costs, to ensure high-quality insights while maintaining reasonable engagement expenses.
* Evaluation of the control system of fixed assets at the client company:
To enhance the internal control system for fixed assets at clients' companies, it is essential to implement a more robust assessment approach Practitioners should effectively combine customer interviews with real-world observations The author proposes several ideas to achieve this goal.
Auditors should utilize historical data from previous audits for familiar clients, while for new clients, they must consult the experiences of auditors who have conducted prior audits This approach is crucial for gathering evidence on the effectiveness of the client's internal control systems Additionally, auditors should prepare a set of targeted questions regarding fixed asset management to engage with responsible personnel for comprehensive insights.
Auditors must understand the process of transferring fixed asset documents and effectively monitor newly acquired assets It is essential to assess the overall reasonableness of fixed asset management and verify the accuracy of information through investigative interviews.
Auditors must develop a diagram that outlines the fixed asset control process within the client's organization This visual representation should highlight both the strengths and weaknesses of the current system, ensuring a comprehensive evaluation of asset management practices.
The auditor has conducted a physical inspection of the company's fixed assets, revealing that many are outdated and degraded Through this observation, it is evident that while the machines operate according to their capacity and standards, there is a need to assess the overall efficiency of fixed asset utilization.
The strengths and weaknesses of the graduation thesis
The graduation thesis reflects the author's skills and knowledge gained during the internship at Deloitte, supported by valuable advice from the firm's partners The report includes figures, tables, and diagrams sourced from both the firm and clients, ensuring the data's transparency and accuracy Each analytical step is accompanied by specific visuals to enhance readability and comprehension.
Due to limitation of time, experience, and presentation skills, the author’s performance reflecting in the thesis may be not clear and logical enough I hope for understandings
During my three-month internship at Deloitte Vietnam, I gained invaluable insights into the organizational structure and working processes of an audit firm Actively participating in an audit engagement for financial statements allowed me to apply theoretical knowledge from my studies to real-world situations Despite focusing on basic tasks, I learned a great deal from my colleagues, enriching my experience and understanding of the auditing profession This internship proved to be a highly effective practical lesson, transforming academic theory into practical skills and serving as a significant step toward my future career as an auditor.
During the internship, the author gained valuable insights into fixed asset procedures by applying knowledge and experience to various businesses and clients This article highlights the practical understanding of fixed assets acquired throughout the internship.
Due to limited qualifications, lack of practical experience, and short internship time, the above internship report may contain errors
Sincerely thank the lecturer - Master Truong Thi Hanh Dung and the co-workers in Deloitte for their help and support during the internship.