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The necessity of the thesis
The audit of fixed assets is a vital component of the financial statement audit, as fixed assets often represent a substantial portion of an enterprise's total assets and significantly influence its operations During this process, risks such as employee misappropriation or misuse of assets may emerge Furthermore, depreciation costs pose additional risks that can impact the profitability of the business.
Hence, when auditing fixed assets, auditors must be more cautious and consider whether depreciation costs have been properly, truthfully and reasonably recognized
This thesis focuses on the significance of accurately presenting non-current assets and aims to enhance understanding of the audit procedures for fixed assets, specifically examining "Audit procedures for property, plant, and equipment" as outlined by Ernst & Young Vietnam.
Thesis objectives
Understanding the fixed assets audit procedure carried out on ABC Illustration by Ernst & Young
Review on the Ernst & Young's fixed assets audit process.
Object and the scope of the thesis
Object: The process of auditing fixed assets by EY Vietnam Illustrate on ABC Company Scope: ABC’s financial statements for the fiscal year that ended 31 December 2022.
Structure of the thesis
The thesis consists of 5 chapters:
Introduction: The necessity of the thesis, thesis objectives, object and the scope of the thesis, structure of the thesis
Chapter 1: Introduction to Ernst & Young Vietnam
Chapter 2: Theoretical basis on the audit procedure for the fixed assets
Chapter 3: Audit process of fixed assets and depreciation expenses in financial statement provided by Ernst & Young Vietnam
Chapter 4: Comments and review on the process of fixed assets audit of Ernst & Young Vietnam.
INTRODUCTION TO ERNST & YOUNG VIETNAM
The history and development of EY
Ernst & Young (abbreviated: EY) is a worldwide professional services firm headquartered in London, United Kingdom, a global leader in auditing, taxation, financial transactions, and consulting services
Throughout the previous century and a half, a number of predecessor companies—the first of which was founded in 1849 in England as Harding & Pullein—were merged to become
EY as it is today An accountant named Frederick Whinney joined the business, and was reorganized as Whinney, Smith & Whinney after his son joined it in 1894
In Cleveland, Ohio, in 1903, Alwin C Ernst and his brother Theodore Ernst founded the company Ernst & Ernst In 1906, Arthur Young, a Scottish accountant, founded Arthur Young & Co in Chicago
Whinney and Ernst & Ernst Smith & Whinney united to establish Ernst & Whinney in
1979 Later, Arthur Young and Ernst & Whinney amalgamated to form Ernst & Young
In 2013, Ernst & Young rebranded itself as EY, marking a significant transformation into one of the largest accounting firms globally The company updated its logo to a distinctive yellow-gray design, which continues to be utilized today.
Over the past 30 years, EY has provided employment opportunities to more than 300,000 diverse people in more than 700 office locations in over 150 countries
With 22 regions, EY divides its operating regions into four major regions: Americas, Asia- Pacific, EMEIA (Europe, Middle East, India, and Africa), and Japan
EY has established strong partnerships with prominent companies across various industries, including tech giants like Apple and Facebook, retail leader Walmart, and the renowned e-commerce platform Amazon.
For 23 consecutive years, EY has been recognized in Fortune magazine's list of the top 100 best places to work, achieving the 52nd position in 2018.
According to EY website, as a member of EY, the first auditing and consulting services company in Vietnam with 100% foreign investment was founded on March 11, 1992, as
EY Vietnam has established itself as a market leader since its inception in the country It is the first foreign independent auditing firm to obtain a representative office license from the Ministry of Trade, as well as the first independent auditing firm licensed by the State Commission on Cooperation and Investment (SCCI).
EY Vietnam pioneered the provision of international standard independent auditing services for the first foreign direct investment (FDI) companies entering the Vietnamese market, including major brands like Coca-Cola and Heineken By delivering honest and reliable audit reports, EY Vietnam has played a crucial role in supporting businesses and investors in their decision-making processes.
EY Vietnam offers comprehensive tax and legal advisory services for foreign direct investment (FDI) firms, assisting them in establishing branches and adhering to Vietnamese regulations With EY's expert guidance, FDI companies stay informed about legal requirements, enabling them to operate efficiently and contribute positively to the national budget.
EY has established strong, long-term relationships with major clients across various industries and countries, including significant partnerships with Japanese companies such as Mitsubishi and Sapporo Breweries Japan ranks as the second-largest investor in Vietnam, with over $64.2 billion invested as of November 20, 2021, according to the Foreign Investment Agency of the Ministry of Planning and Investment This substantial investment underscores Japan's importance as a key client group for EY Vietnam, built on the foundation of the firm's service quality and reliability.
EY is positioning itself as a leading corporate consultant in Vietnam, supported by two representative offices and a team of over 1,400 skilled accounting and financial specialists, both local and international, who possess extensive knowledge and expertise.
EY Consulting Vietnam, Ernst & Young Vietnam Company Limited (EY Vietnam), Ernst
& Young Vietnam Law Firm Limited (EY Law Vietnam), and EY Vietnam Cybersecurity are members of the global EY network
The table below shows some general information about the offices located in Vietnam
Ho Chi Minh Offices (headquarter in Vietnam)
Address 20th Floor, Bitexco Office
Building, No 2 Hai Trieu, Ben Nghe Ward, District 1,
Ho Chi Minh City, Vietnam
8th Floor, Corner Stone Building, 16 Phan Chu Trinh, Hoan Kiem District, Hanoi, Vietnam
Table 1.1 General information about EY Vietnam
Services provided by Ernst & Young
EY provides audit services to a diverse range of prominent companies across various industries in Vietnam, catering to both local and international clients Notable customers include Vietcombank, Sacombank, Hoang Anh Gia Lai Group, Samsung Electronics Co., Ltd, Vingroup, and Mobile World Joint Stock Company.
EY is dedicated to delivering professional, high-quality services globally, specializing in assurance, consulting, tax, and strategy and transactions While the firm also offers financial services, its primary focus remains on enhancing and expanding these four core areas Assurance services generate the largest portion of EY's revenue, followed closely by consulting and tax services.
Auditing plays a crucial role in generating the majority of a company's revenue, as demonstrated by Figures 1.2 and 1.3 According to EY's website, their Assurance services encompass Financial Accounting Advisory Services (FAAS), Audit, and Forensic & Integrity Services EY auditors deliver high-quality audits that support economic growth and foster trust within the financial and commercial sectors, ultimately benefiting the public interest.
EY auditors leverage their expertise to provide exceptional audit services, maintaining independence, honesty, objectivity, and skepticism throughout the process Utilizing innovative software, they incorporate three key technological advancements in their audits to enhance efficiency and accuracy.
EY Canvas - the worldwide auditing system; EY Helix - the analytics platform; and EY Atlas - the platform for knowledge in the cloud
FAAS: The FAAS teams at EY work with stakeholders to indetify and share both nonfinancial and financial insights, as well as evaluating financial data to enable better decision-making
Forensic & Integrity Services: Professionals at EY Forensic & Integrity Services help companies in protecting and restoring their enterprise and financial reputations by investigating facts, resolving disputes, and managing regulatory problems
As stated in the annual report of EY, the assurance service line has the largest number of employees as well as generating the most income for the company
Figure 1.1 The number of EY People from different service lines at EY
Figure 1.2 EY revenue by service line - US millions
EY Consulting emphasizes the critical role of effective issue resolution for the efficient operation of enterprises By leveraging innovation, technology, and human resources, the firm is dedicated to transforming businesses and striving to "build a better working world."
Consulting services play a crucial role in assisting businesses with analytics, cybersecurity, strategy, threat management, client experience, legal compliance, supply chain operations, and technological transformation EY enhances performance management, reduces financial expenses, develops robust financial systems, aligns workforce skills, and anticipates financial risks effectively.
To help businesses flourish in this period of fast change, EY tax specialists provide services across all tax disciplines
EY employees assist organizations with transaction tax, business tax, international tax, and tax-related challenges due to their extensive understanding and experience with people and technology platforms
Specifically, tax services of EY include tax function operations, tax planning, tax policy and controversy, tax compliance, global trade, transaction tax and private tax services, and global tax reform
EY's Strategy and Transactions services empower clients to navigate complexities by visualizing their ecosystems, transforming their portfolios, and positioning themselves for a sustainable future Leveraging global reach and expertise, EY enhances business strategy, capital allocation, and transaction consulting to drive swift value creation Additionally, EY supports cross-border fund transfers and aids in the market introduction of innovative products and technologies.
EY provides clients with the following services to help them reach their goals such as Buy and integrate, Business strategy, Corporate finance, Reshaping results, Sell and separate.
Business characteristics and organizational structure of EY
The company's organizational structure is distinctly decentralized, with each department led by a head responsible for its operations Departments effectively communicate and collaborate, fostering a supportive environment EY's organizational framework is categorized into specific functions, ensuring streamlined management and cooperation across the organization.
- AABS Department – Focuses on providing auditing services
- TAX Department – This department specializes on tax duties
- TAS Department – Focuses on business consulting services
- Admin Department - Handles internal unit activities as well as human resource management
Each department is structured into various ranks, including staff, senior, manager, senior manager, and partner Each level has specific responsibilities, including reporting to superiors and providing support to both subordinates and colleagues.
Staff and Senior: having direct contact with clients and do tasks according to the strategy set by superior members
Managers and senior managers: reviewing the work of their staff and seniors
The last reviewer and the person responsible for signing the audit report is referred to as the partner
"Building a better working world" serves as EY's core purpose and reflects its commitment to fostering a positive workplace culture Through this guiding principle, EY aims to cultivate a professional environment for employees, clients, and the broader community By delivering high-quality audit services, the firm enhances trust and boosts investor confidence in global capital markets and economies.
The 2022 EY audit quality report highlights the firm's unwavering dedication to maintaining exceptional audit quality EY fosters a culture of integrity rooted in strong ethics and shared values, including respect, teamwork, and inclusivity Additionally, the firm actively promotes diversity, equality, and inclusion (DEI) through initiatives such as career access programs, mentorship opportunities, and open dialogue.
Senior Manager Manager Senior Staff
Senior Manager Manager Senior Staff
Figure 1.3 Key focus areas of EY in 2022
EY aims to positively impact 1 billion lives by 2030 through its corporate responsibility initiative, EY Ripples This program engages over 1 million individuals globally to foster long-term change by partnering with impact entrepreneurs, supporting the next generation, and promoting environmental sustainability Since its launch in 2018, EY Ripples has already touched more than 55 million lives, including 20 million in FY21 alone In that fiscal year, EY invested US$119 million in community-building projects and employees contributed 837,000 hours to various initiatives and valuation efforts.
Diversity encompasses a wide range of differences, including nationality, gender, race, background, generational perspectives, and various working and thinking methods It also includes distinctions in religious beliefs, talents, experiences, and professional skills, as well as variations based on region, function, and service line.
Inclusiveness leverages diverse perspectives to drive business success, fostering a workplace where EY employees feel valued and contribute their best in every interaction By cultivating a strong culture of diversity and inclusion, EY has positioned itself as a leader in the global professional audit services market.
Creating an inclusive workplace is crucial for companies to enhance employee satisfaction and embrace diversity An environment that values differences fosters mutual trust, drives innovation, and contributes to the overall success of the organization.
Following the establishment of development strategies, EY commits essential resources, including human capital, technology, expertise, and experience, to ensure the successful execution of its plans Mr Tran Dinh Cuong, Country Managing Partner of EY Vietnam, emphasizes that sustainability is a crucial value that empowers EY Vietnam to navigate challenges and achieve remarkable success.
With the constant change of the market and technology, EY's entire workforce is always learning and training to meet the market's and clients' changing demands.
THEORETICAL BASIS ON THE AUDIT PROCEDURE FOR THE FIXED
Asset characteristics of fixed assets
There are two categories of fixed assets: tangible and intangible non-current assets a) Tangible fixed assets
Tangible fixed assets, defined in Clause 1, Article 2 of Circular 45/2013/TT-BTC, are essential physical tools used in labor that retain their original form throughout various business processes Common examples of these assets include buildings, architectural structures, transportation vehicles, and machinery.
To be more specific, in accordance with Clause 1, Article 3 of Circular 45/2013/TT-BTC,
"Means of labor" refer to tangible assets that possess an independent structure or consist of interconnected individual components designed to perform specific activities, where the system's functionality relies on all its parts To qualify as fixed assets, these tangible assets must meet three essential characteristics.
- It is clear that the usage of such an asset will yield economic benefits in the future; having a utilization time of more than one year
- Having the utilization time of more than one year
- Assets' primary price, which is set at $30,000,000 (thirty million), must be established consistently
According to Paragraph 13 of VAS 03, tangible fixed assets should be valued at their historical cost, which includes all expenses necessary for acquiring the assets until they are ready for use, as outlined in Paragraph 05 of VAS 03 Additionally, the treatment of intangible fixed assets follows similar principles.
Intangible fixed assets, as defined in Clause 1, Article 2 of Circular 45/2013/TT-BTC, lack physical forms and represent the value of investments These assets play a crucial role in business operations and encompass costs associated with land use, issuance rights, patents, and copyrights.
According to Clause 2, Article 3 of Circular 45/2013/TT-BTC, costs incurred during the implementation phase can be classified as internally created intangible assets by a business, provided that all seven specified requirements are fulfilled.
- Technical feasibility assures completion and the intended use or sale of intangible assets
- Enterprises plan to finish the intangible asset for use or sale
- Enterprises can utilize or sell intangible assets that can create economic advantages in the future
- Having adequate resources to complete the deployment, sale, or usage phases of such intangible assets
- Knowing with certainty the total cost of the deployment phase to produce such intangible assets
- Suitable assessment for usage time and value for intangible fixed assets have been determined
Paragraph 18 of VAS 04 states that the initial value of intangible assets may only be recorded at historical cost Under paragraph 06 of VAS 04, total expenses that businesses must incur to own the assets during the time the assets are used as intended are historical cost of intangible fixed assets
In accounting books, the fixed asset item comprises the historical cost, cumulative depreciation, and residual value These items are described as follow in paragraph 05, VAS 03:
Depreciation of fixed assets is the steady decline in the value of fixed assets during their useful life due to usage in business production and business activities
Accumulated depreciation: the total amount of depreciation on fixed assets up to the reporting date
Fixed asset residual value: the difference between the fixed asset's original price of the fixed assets and accumulated depreciation of the fixed assets as of the reporting date
According to Clause 1, Article 13, Circular 45/2013/TT-BTC, there are three diferent method to calculate depreciation expense including: a) Straight-line depreciation method
The straight-line depreciation method is commonly used to calculate the annual depreciation of fixed assets, incorporating a consistent depreciation rate into a company's production and business costs Additionally, the adjusted reducing balance method offers an alternative approach to asset depreciation.
This method is suitable for businesses involved in rapidly evolving technological domains
The following criteria must be completed in order to use the adjusted declining balance method to depreciate fixed assets used in company operations:
- being brand-new fixed assets;
- being tools, machinery, and measuring devices c) Method of depreciation based on volume
This method is used to depreciate machinery and equipment that meet the following criteria:
- Using fixed asset capacity, calculate the overall number and amount of items manufactured
- During the fiscal year, real capacity each month is greater than 100% of capacity.
Related assertions
EY Global Audit Methodology (EY GAM) is an internal resource developed by EY Global that serves as a comprehensive repository of auditing documents and theories, facilitating easy learning of new procedures for auditors Grounded in International Standards on Auditing (ISA), EY GAM incorporates regional insights to align with local auditing standards and regulatory requirements Regular updates ensure that EY GAM remains relevant and reflective of the current audit period.
The following are the financial statement assertions relating to fixed assets described by
Related assertions Objectives of the audit
Existence At the reporting date, the fixed assets shown on the balance sheet exist
Completeness The balance sheet includes all fixed assets as of the balance sheet date
Valuation Fixed assets are held in the proper amount
(taking into account accumulated depreciation, depletion or amortization)
The cost of fixed assets is allocated in a systematic and reasonable manner to the relevant accounting periods
According to the relevant financial reporting framework, the fixed assets shown on the financial statements and related value adjustments have been accurately recorded
Rights & obligations The balance sheet fixed assets are owned by the entity or by others on its behalf
In accordance with the relevant financial reporting standards, the fixed assets account has been clearly defined, and adequate disclosures have been included in the notes to the financial statements.
Table 2.1 Assertions relating to PPE
Potential risks related to fixed assets
According to EY GAM, there are several risks in recognizing the enterprise's fixed company's fixed assets entails the following risks:
Concerning test count fixed assets:
- The company does not perform period-end inventory
- The minute of fixed assets does not clearly classify assets
Regarding the recognition of fixed assets:
- Fixed assets have not yet been transferred to the firm but are still recognized in the financial statements
- Record increases in fixed assets despite a lack of invoices and records
- Record decreases in fixed assets even if no decision on liquidation has been made
- Incorrectly documenting the historical cost of fixed assets The cost of updating an asset, for example, is included in the cost rather than being added to the historical cost
Concerning the fixed assets management:
- There is no list to track fixed assets Mortgaged assets are not tracked distinctly
- Applying inappropriate and inconsistent depreciation methods
- Financial leasing fixed assets and investment real estate are not depreciated
- In terms of construction in progress (CIP): There is no tracking of CIPs The construction has been finished and implemented, however it remains on the CIP.
Internal control of fixed assets
Paragraph 4(c) of VSA 315 defines "internal control" as a set of procedures implemented by governance and management personnel to provide reasonable assurance of an entity's ability to achieve its objectives This framework not only enhances the reliability of financial statements but also promotes operational efficiency and ensures compliance with relevant laws and regulations Any aspect of these internal control components is referred to as a "control."
Depending on the size and complexity of the entity, internal control may be designed, implemented, or maintained differently
Internal control over fixed assets
According to paragraph 14 of VSA 315, internal control is categorized into five components, offering a structured framework for auditors to assess various internal control elements that may impact an entity's overall internal control system.
- The risk assessment process of the client
- Information systems for the preparation of financial statements, including associated business processes and information sharing;
Paragraph A70, VSA 315 claims that the auditor must consider the following control environment components to understand the entity's control environment:
- Integrity and ethical values: These are important elements influencing the efficiency of controls' design, operation, and monitoring;
- Having competency: The management considers the individual's capacity for each specific task in the management of fixed assets
- The Board of Directors' activities are rational, for instance, in the manner they work with internal and external audit
- Organizational structure of the enterprise
Effective division of responsibilities is essential for businesses, as it ensures clear delineation of tasks among departmental functions Companies must clearly designate individuals responsible for the management, registration, approval, acquisition, liquidation, and sale of fixed assets, particularly in relation to Property, Plant, and Equipment (PPE) This clarity helps streamline operations and enhance accountability within the organization.
The entity's risk assessment procedure
Paragraph 15 of VSA 315 outlines that the entity's risk assessment process is designed to assist management in identifying and managing potential risks The auditor must determine the effectiveness of the business in this regard.
- Identify the risks associated with the financial reporting objectives;
- Estimate the extent of the risk;
- Assess the likelihood of a risk occurring;
Information systems for the preparation of the financial statements, including associated business processes and information sharing;
As stated by paragraph 18 of VSA 315, the auditors must obtain an understanding of the information systems involved in the preparation of the financial statements, including the following:
- Procedures to be performed for the creation, recording, processing and editing of transactions, entry into the general ledger and the presentation of financial statements;
Accounting paperwork and supporting information play a crucial role in producing, documenting, processing, and reporting transactions These elements help clarify how data is represented in the general ledger, whether in paper or electronic format.
- The process for preparing and presenting the entity's financial statements, including accounting estimates and significant disclosures;
- Controls for entries, including non-common journal entries to record irregular transactions, unusual transactions or adjustments
- The auditor must understand how the enterprise communicates about its roles, responsibilities, and other important matters related to financial statements
Control activities are the policies and procedures implemented to ensure that management's directives are effectively followed and applied across different organizational and functional levels These activities play a crucial role in maintaining compliance and operational efficiency within the entity.
- Approval from superiors Regarding PPE, every fixed asset-related actions must get the responsible person's approval and follow the plan
To protect fixed assets, businesses should implement physical controls such as safety locks, safes, and surveillance cameras These safeguards help prevent theft and fire damage, while also ensuring compliance with strict regulations regarding the removal of assets Additionally, securing insurance for these valuable items is essential for comprehensive asset protection.
The auditor must assess the relevance of the internal audit in relation to the overall audit, focusing on the responsibilities, roles, and activities performed by the entity's internal audit concerning fixed assets.
AUDIT PROCESS OF FIXED ASSETS AND DEPRECIATION
Initial planning
3.1.2 Evaluating the acceptance and continuance process
EY auditors develop a comprehensive understanding of client needs and expectations by engaging with key personnel responsible for oversight and management This proactive approach clarifies the audit conditions, minimizing potential misunderstandings Additionally, EY ensures that the decision to accept or continue the client relationship and the audit remains suitable.
The Partner in Charge (PIC) is responsible for acquiring new clients and nurturing relationships with existing ones, while the Senior in Charge (SIC) gathers client information, develops the audit program, and conducts research to gain a comprehensive understanding of the entity.
EY's auditor chose to accept ABC as a client due to prior engagement and updated information from the previous year's audit file A review by SIC confirmed that there were no significant changes in ABC's business operations, indicating that the company continued to function normally Consequently, EY decided to maintain its relationship with ABC, deeming the audit process appropriate.
3.1.2 Establishing the appropriate audit team
After establishing the audit team, SIC will assign tasks and set a timeline according to the business's workload and size, while also re-evaluating the annual risk assessment For existing clients, priority is often given to auditors who have previously conducted audits to minimize costs and time The typical composition of the audit team includes one Senior Auditor, two Staff Auditors, and one Intern.
The audit team's SIC will assess the additional expertise of its current members before determining whether to engage an EY internal specialist or an external auditor specialist, subsequently reporting their decision to management.
In addition, EY assesses compliance with ethical standards, including the independence of each team member, by providing a questionnaire before the individual joins the team on
EY Canvas to maintain confidentiality
In some cases, the team comprises specialists with expertise beyond accounting and auditing, including IT and tax professionals, to address the specific requirements of the audit effectively.
In order to determine the scope of work for each party, the company conducts discussions with customers through meetings The content of the meeting includes:
- Working time and location: At ABC company's office within one week
- Related department: ABC company's accounting department and audit team
- Expected completion time: from 6 to 10 February, 2023
- Talking about updates, changes in policies, business activities: no change
- Audit supporting documents: customers will send via email later
The audit team will create a comprehensive list of necessary documents for ABC and forward it to the chief accountant Among these, specific documentation related to fixed assets is essential for the auditor's review.
- Fixed Asset Register (FA register)
- Depreciation schedule according to each type of fixed assets
- Test count of fixed assets (if any)
SIC assigns work that is in line with each member's skill level As seen in Figure 3.2, SIC delivers a task assignment sheet to each member
Identify and assess risks
3.2.1 Understanding the business of the client
Gaining a thorough understanding of the company and its environment, along with the relevant financial reporting framework, enables auditors to grasp significant events and circumstances This comprehension is essential for assessing how various underlying risk factors may impact these events and conditions Key aspects of business understanding include analyzing financial performance, operational processes, and market dynamics.
- Current market conditions and operating environments for the entity
- The entity's current activities, financial requirements, and governance structures
- How the environment and markets could be changing, and how these modifications might affect the entity
- Whether management has considered these changes and how they could affect the entity's future operations, finances, and governance arrangements
EY focuses on assessing changes in the business model of longstanding clients, as these factors can significantly increase the risk of substantial misrepresentation in the financial statements for the current quarter.
According to EY GAM, different organizations possess unique fixed assets and accounting systems, necessitating auditors to employ tailored auditing methods that align with the specific characteristics of their clients.
- Customers' accounting methods for fixed assets include: how to recognize fixed assets, how to calculate depreciation, purchase and liquidation regulations, and so on
- Find out what assets the firm acquired and sold over the fiscal year, and how much they cost
Founded in 1972, ABC specializes in water-control gate machinery and various steel products, including cold-drawn steel bars, steel wire, steel wire rope, and spheroidized wire The company's commitment to quality, innovation, and integrity forms the foundation of its business philosophy.
The mission of ABC is to satisfy all of the needs of its clients by providing superior technology, high-quality production equipment, flawless quality control systems and testing equipment
ABC certified ISO 9001, ISO 14001, and TOSHMS/ OHSAS 18001 by Metal Industries Research & Development Center in 2015
- Offering water-control gate machinery, cold-drawn steel bars, steel wire, steel wire rope, and spheroidized wire
- Providing assembly service and product problem-solving support
Based on the ABC’s notes to financial statement, the basis of the enterprise's presentation includes:
- Currency used in accounting: Vietnam Dong (VND)
- Applicable accounting book form: General ledger
- The fiscal year for which financial statements must be prepared extends from January 1 to December 31
- ABC adheres to the Vietnamese accounting policy for enterprises and Vietnamese accounting standards published by the Ministry of Finance, particularly Circular 200/2014/TT-BTC, and compiles the financial statements accordingly
In accordance with the notes to the financial statement, there are some of ABC's main accounting policies for fixed assets:
The cost minus cumulative depreciation equals the worth of tangible fixed assets
The acquisition price along with the related expenses for putting a tangible fixed item into operation are included in its cost
The costs associated with purchasing, maintaining, and replacing tangible fixed assets contribute to an increase in asset value Meanwhile, maintenance and repair expenses are recorded on the income statement in the period they are incurred.
Gains or losses from the sale of a tangible asset are determined by the difference between the total selling price and the asset's carrying value, and these are recorded in the income statement at the time of disposal.
Intangible fixed assets are assessed at their cost minus accumulated depreciation, which includes the acquisition price and any directly attributable costs necessary for their use.
An intangible asset's cost is increased by the costs associated with enhancing and upgrading it, and other costs are recorded when they are paid on the income statement
The income statement displays gains or losses related to the sale of an intangible asset (the difference between the gross sales revenues and the asset's carrying value)
Land use rights, which represent the land use rights value obtained by the company, are also recognized as a form of intangible property
The company use straight-line method to calculate the depreciation The annual depreciation charge is:
3.2.2 Identifying and evaluating the internal control
3.2.2.1 Identifying the nature of fixed assets accounts
ABC has recognized fixed assets under the following types of accounts:
Account 211 represents tangible assets and is categorized into five detailed fixed asset items: Account 2111 for Buildings and Structures, Account 2112 for Machinery and Equipment, Account 2113 for Transportation and Facilities, Account 2114 for Office Equipment, and Account 2118 for Other Tangible Fixed Assets.
Account 214, designated for tracking accumulated depreciation, specifically monitors the depreciation on tangible fixed assets As ABC does not categorize intangible fixed assets separately, account 2141 is employed to represent the total depreciation expenses recorded for these tangible assets.
Account 241, known as Construction in Progress (CIP), represents a temporary classification for assets currently under construction ABC will monitor one or more construction projects within the CIP category until their completion.
3.2.2.2 Evaluating the internal control system
The auditor has conducted observations and interviews with customers to evaluate the business's internal control systems This assessment is crucial for identifying potential fraud and risks, allowing the auditor to establish the necessary audit procedures effectively.
Table 3.1 presents examples from an investigation conducted by the auditor with ABC, highlighting key findings related to the company's internal control over fixed assets.
Whether the company's organizational structure is in line with the company's business objectives and activities or not
Whether the company's organizational structure is different from other businesses in the same industry or not
Assigning employee rights and responsibilities
Whether employees clearly understand the responsibilities and duties related to their work or not
Whether the company has clearly divided rights and obligations for individuals in the company or not
Whether the business has policies that allow approval and authorization at each appropriate level or not
Y The company has clear decentralization for deputy directors and chief accountants
Whether there is a specific division of duties among the departments in the accounting apparatus
HR policies whether the company has policies and criteria for recruiting, training, evaluating, and firing employees or not
Y The company always has policies of recruiting skilled individuals to match the position whether the company updates its employee- related policy on a regular basis or not
Y whether the performance of each employee is periodically evaluated or not
Y whether the company's new employees understand their responsibilities or not
Whether the business has policies that allow approval and authorization at each appropriate level or not
Whether the business risks during this audit period are found, identified, evaluated the effect, likelihood as well as corresponding solutions or not
Whether the BOD has developed a business risk assessment process to these business risks or not
Whether the enterprise periodically reviews internal control and evaluates its effectiveness or not
Whether or not the internal audit department have sufficient expertise and experience
Y whether or not the company's internal audit department has access to accounting documents and their scope of activities is unrestricted
Reporting deficiencies in internal control
Whether or not the enterprise has policies to ensure timely implementation of solutions to deficiencies in internal control
Whether the BOD consider the opinions expressed by the auditors regarding internal control or not
Whether the internal audit department submit reports on detection of internal control deficiencies to the BOD in a timely manner
Table 3.1 Excerpt from the evaluation table of the internal control system at ABC
In terms of fixed assets, the auditor conducts interviews and investigates the following concerns in order to assess internal control over fixed assets:
- Whether the procedures for purchasing, investing, liquidating, and selling fixed assets are correct
- Whether the person approving the purchase or liquidation of fixed assets is different from the bookkeeper
- whether the depreciation calculation is consistent with the previous year
- whether all assets are recorded at historical cost
- Whether there are regulations on handling damaged or lost property
- Whether the accounting policies currently applied to fixed assets are appropriate
- whether there is a fixed asset stock-take and reconciliation with the accounting records
Auditors assess whether fixed assets are accurately tracked and inventoried by conducting on-site observations of the inventory During this process, they document any assets that have depreciated or are no longer in use Additionally, the test count minutes must be signed by both the accompanying accountant and the warehouse manager, as the auditor solely observes the inventory without direct involvement.
Following a thorough evaluation of the client's internal control system, the EY auditor determines whether to "rely on" or "not rely on" these controls This decision is crucial as it guides the auditor in deciding whether to conduct tests of controls (TOC).
For ABC Company, no significant risks were found
Following the completion of the Test of Controls (TOC), the auditor selects specific transactions for a comprehensive walkthrough to verify the accuracy of the process This assessment is illustrated in Figure 3.3 Subsequently, the EY auditor conducts the necessary tests of controls for the company.
Design and execute responses to risks
A comprehensive audit plan for fixed asset items is essential for achieving the audit's objectives Auditors will implement tailored processes that align with the specific context and characteristics of each organization during the audit.
During the planning phase, the auditor identified ABC's fixed assets account as a limited risk account, leading to the decision not to perform Test of Controls (TOCs) for this area Consequently, the auditor concentrated on verifying the accurate recording of fixed asset purchases and depreciation expenses for the year, prioritizing substantive procedures in the audit process.
Paragraph 4(a) of VSA 330 defines substantive procedures designed to detect the material misstatement at assertion level Substantive procedures include:
When auditing Property, Plant, and Equipment (PPE), key assertions to focus on are existence and valuation, as highlighted by EY GAM Companies may have the incentive to overstate the value of their fixed assets, making accurate valuation critical Additionally, the issue of asset depreciation plays a significant role in valuation, as it relies heavily on management's estimates.
According to VSA 520, "analytical procedures" involve assessing financial information by analyzing the relationships between financial and non-financial data These procedures also encompass necessary investigations into significant fluctuations or relationships that are inconsistent with other relevant information or deviate notably from expected values.
Before conducting the test of details, the analytical procedure is used to acquire audit evidence by analyzing the trend, ratio, the differences between IPE and data calculated by
EY's auditors analyze the ratio of total fixed assets against various criteria to evaluate asset materiality This assessment helps determine the reasonableness of fixed asset items and identify any unusual discrepancies related to the company's fixed assets.
EY's auditors evaluate the appropriateness of the useful life and depreciation of fixed assets to ensure compliance with Vietnamese Accounting Standards and relevant guidelines pertaining to fixed assets.
The auditor evaluates the changes in fixed asset balances by comparing the current year's fluctuations to those of the previous year By examining additions and disposals, the auditor determines the reasonableness of these movements in fixed assets.
Then, auditor investigates the causes of those differences by interviewing managers to obtain legitimacy of the matter
During the audit of fixed assets, EY's auditor primarily examines the additions and disposals made throughout the audit period It is crucial to ensure that the company adheres to Circular No 45, which stipulates that the historical cost of fixed assets must exceed 30 million.
Cheking the fixed assets account balance
Before evaluating changes in fixed assets, auditors must verify the accuracy of the opening account balance and ensure that the general ledger data aligns with the general account information Consequently, auditors are required to reconcile the total figures of the trial balance with those of the general ledger.
EY's auditor can establish the ending balance by analyzing the opening balance from the prior year's audit records and reviewing the detailed movements of fixed assets throughout the audit period.
Testing whether the decrease and increase of the fixed assets are correct
EY's auditors generally examine all newly acquired fixed assets and assess the disposal of existing assets They may also choose to sample specific items based on their significance to the client.
The auditor examines the approval and recognition of all fixed assets that have increased or decreased during the period to gather evidence regarding the validity of the recognized assets EY's auditor verifies a selected list by obtaining relevant documentation, including contracts, invoices, and tax returns.
The auditor examines instances where the purchase price or settlement of construction for fixed assets exceeds estimates, gathering acceptance minutes to verify that these certificates have been duly approved by an authorized individual.
Auditors must focus on construction-in-progress that has been completed and is ready for use before the period ends, based on completion and handover minutes This involves reviewing all significant construction contracts incurred before year-end and examining relevant documents, including invoices and handover minutes, to ensure fixed assets are accurately recorded.
With the fixed assets disposal, the auditor considers whether the disposal of fixed assets has been removed from the balance sheet by reducing the assets account to zero
EY's auditor checks and verifies to ensure that the additions and disposals have been properly recorded in the fixed assets register and general ledger
The primary goal of this test is to validate the valuation assertion related to depreciation EY's auditor examines the client's depreciation method, useful life, and residual value of fixed assets By recalculating depreciation expenses and comparing them with the client's records, the auditor ensures compliance with applicable accounting standards Accurate estimation of the depreciation rate is crucial, as underreporting can result in inflated fixed assets and profits, while overreporting can have the opposite effect.
Observing the stocktaking of the fixed assets in the audit period
Conclude and communicate
The auditor uploads all relevant working papers, files, and documents to EY Canvas Upon completing the audit, the SIC reviews the working papers prepared by the member to ensure thoroughness and accuracy.
- ensure that all work is completed properly and on time
- consider if the audit evidence has been gathered properly
- summarizes the audit results to express an audit opinion on whether the fixed assets item is presented in a true and fair view
During the review, if the working papers are found to be incomplete or have errors, SIC requests the auditor in charge to directly correct and supplement them
The auditor has confirmed that all procedures regarding the fixed assets section of ABC have been thoroughly conducted, with all necessary documents accurately recorded and presented Consequently, the auditor asserts that all relevant assertions have been satisfied, leading to the conclusion that the fixed assets are accurately recorded and presented in a true and fair manner.
SIC compiles a summary of the audit findings and prepares a draft of the audit report Prior to finalizing the audit and releasing the report, it is essential for higher-level auditors to conduct a thorough review of the audit file.
Manager Review the draft and all of the working papers to prepare the audit report
Senior manager Review the audit report and all of the working papers before submitting them to the partner for final review
Partner Review and sign the audit report
Officially released the audit report
The auditors may make recommendations in order to help their client re-align the management and enhance the accounting systems and internal control
Following the release of the audit report, EY's auditors retain responsibilities to monitor future events that could impact the overall financial statements, especially concerning fixed assets In such instances, auditors are required to engage in discussions with the client's management to devise suitable solutions tailored to the specific circumstances.
CHAP 4: COMMENTS AND REVIEW ON THE PROCESS OF FIXED ASSETS
Advantages of the audit procedure of fixed assets at EY
EY's fixed assets audit process and procedures are very specific, careful and in line with accounting regulations and standards, making the audit convenient and the audit risk low
The audit plan for fixed assets is developed by the auditor's comprehension of the business context and the client's objectives, which helps in identifying potential material misstatements and unusual fluctuations in fixed asset accounts This understanding is essential for designing effective audit procedures tailored to the specific circumstances of the audit.
EY's fixed assets audit process and procedures are very specific, careful and in line with accounting regulations and standards, making the audit convenient and the audit risk low
EY leverages advanced tools like EY Canvas and EY Sampling to enhance the audit process EY Canvas serves as an archiving system, enabling auditors to efficiently track historical documents, monitor work progress, and assign specific tasks to team members, thereby ensuring audit quality Meanwhile, EY Sampling assists auditors in executing data sampling effectively Additionally, EY features a dedicated website designed through EY Atlas, further supporting their auditing efforts.
"Encyclopedia" providing all necessary information about audit procedures and processes as well as circulars and decrees on this system of auditing standards
At the conclusion of the audit, senior audit team members will reassess the auditor's work, identifying any overlooked issues and providing suitable solutions This process enhances the credibility of the company's audit findings.
Disadvantages of the audit procedure of fixed assets at EY
At EY, auditors are randomly selected for assignments, leading to variations in their working methods between the mid-year review and the year-end audit Consequently, auditors invest significant time familiarizing themselves with the client's fixed asset audit procedures.
Seniors frequently prefer to select team members who conducted the previous audit due to their familiarity with the clients, which can increase the risk of compromising confidentiality during the audit process.
EY continuously attracts new clients, resulting in auditors managing an increasing workload within tight deadlines Some auditors are assigned high-risk tasks that exceed their qualifications and experience, leading to potential backlogs Over time, this can pose significant risks during audits, jeopardizing EY's reputation and service quality, and ultimately affecting client satisfaction.
The EY GAM fixed asset audit program has not yet adequately divided between manufacturing, trade, and service-providing firms This has made auditing different companies challenging for inexperienced auditors
The auditing procedures for fixed assets at EY are currently constrained, as auditors fail to compare relevant indexes with industry averages or utilize financial ratios This oversight limits their ability to gain a comprehensive understanding of the business activities and strategies related to the utilization of fixed assets.
Recommendation on the audit procedures at EY Vietnam
To enhance the efficiency of the audit process, companies should strategically organize their personnel and schedule appropriate time allocations for each task By recruiting additional staff, organizations can prevent auditors from juggling multiple roles within the same week, thereby reducing the risk of overwork and ensuring a smoother audit experience.
To enhance productivity, the company should upgrade employee laptops to prevent issues related to slow processing speeds and low battery capacity This is particularly crucial for auditors who often face challenges working in locations without electrical outlets or during frequent travel between departments, where efficient technology is essential for managing their workloads effectively.
Experiences during the internship program
During my internship at EY Vietnam, I gained valuable practical experience and insight into the auditor's role throughout the audit process I learned the essential audit procedures and identified the necessary documents to request from clients, enhancing my understanding of the auditing profession.
In addition, through the actual audits, the writer had the opportunity to practice more Excel skills and communication skills with the audit team members and clients
The writer gained valuable insights by observing inventory practices across various businesses, enhancing their ability to select the appropriate sample for audits.
During my time at the EY office, I gained valuable experience by preparing confirmation letters, managing their distribution, and reconciling them with client records This process involved identifying discrepancies and effectively communicating these differences to senior auditors These tasks enhanced my hard skills in auditing while also developing essential soft skills necessary for a successful career in the field.
During a three-month internship at Ernst and Young Vietnam, the writer gained invaluable insights into the organizational structure and operational processes of a leading enterprise This hands-on experience included direct participation in audits, allowing the writer to acquire practical knowledge and skills while applying academic learnings to real-world situations The internship proved to be a crucial stepping stone in enhancing professional capabilities, paving the way for a future career as an auditor.
During the internship, the writer gained valuable insights and practical experience in the fixed assets section, focusing on specific businesses and clients This report encapsulates the knowledge acquired, including general understanding of fixed assets, relevant examples, and suggestions for enhancing the company's audit process.
Finally, the writer would like to thank the instructor – Mr Duong Trong Nhan and the auditors in EY Vietnam company helped and supported during the internship.
1 Ministry of Finance, Vietnam Auditing Standards System, Finance Publishing House, Hanoi
2 Ministry of Finance, Vietnam Accounting Standards System, Finance Publishing House, Hanoi
3 Ministry of Finance (2014), Circular 200/2014/TT-BTC, Guidelines for accounting policies for enterprises, Hanoi
4 The Ministry of Finance (2013), Circular No.45/2013/TT-BTC, Guildingregulation on management, use and depreciation of fixed assets, Hanoi
5 EY Atlas (no date) Available at: https://www.ey.com/en_gl/audit/technology/atlas (Accessed: April 1, 2023)
6 EY Canvas (no date) Available at: https://www.ey.com/en_gl/audit/technology/canvas (Accessed: April 1, 2023)
7 Software system for audit: EY Canvas, EY Atlas, EY GAM