Improving the audit process of fixed assets in financial audits conducted by ac auditing and consulting company limited

Completing the audit...23 CHAPTER 2: PRACTICE OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY A&C AUDITING AND CONSULTING COMPANY LIMITED...25 2.1.1.. Completing the audit...56

NATIONAL ECONOMICS UNIVERSITYEXCELLENT EDUCATIONAL PROGRAM

BACHELOR THESIS Major: Auditing

NATIONAL ECONOMICS UNIVERSITYEXCELLENT EDUCATIONAL PROGRAM

This Barchelor thesis contained huge amount of work, research anddedication Still, implementation would not have been possible if i did not have asupport of many individuals and organizations Therefore, i would like to extendour sincere gratitude to all of them Foremost, I would like to express my sinceregratitude to my instructor Doan Thanh Nga, PhD for the continuous support of myresearch, for his patience, motivation, enthusiasm, and immense knowledge Herguidance has helped me in all the time of research and writing of this thesis.Without her superior knowledge and experience, the Barchelor thesis would not like

in this quality of outcomes, and thus his support has been essential My sincerethanks also goes to my manager – Mr Khoi, my seniors – Mr Tuong, Mr Tuan and

Ms Tho and staffs working in Financal audited Department of A&C Auditing andConsulting Company Limited for offering me the summer internship opportunities

in their groups and leading me working on diverse exciting projects Nevertheless, Iexpress my gratitude toward our families and friends for their kind co-operation andencouragement which help me in completion of this Barchelor thesis

TABLE OF CONTENTS

ABBREVIATIONS vi

LIST OF TABLES vii

LIST OF FIGURES viii

PREFACE 1

CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT 3

1.1 Features of fixed assets 3

1.1.1 Nature and content of fixed assets 3

1.1.2 Accounting for fixed assets 5

1.1.3 Potential errors and frauds 8

1.1.4 Key internal controls of fixed assets 9

1.2 Audit objectives in auditing fixed assets 11

1.3 Sequence in auditing fixed assets in financial audits 12

1.3.1 Audit planning 13

1.3.2 Audit implementation 17

1.3.3 Completing the audit 23

CHAPTER 2: PRACTICE OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY A&C AUDITING AND CONSULTING COMPANY LIMITED 25

2.1.1 History of development of A&C Auditing and Consulting Company Limited 25

2.1.2 The characteristics of A&C Auditing and Consulting Company Limited 27

2.1.3 Characteristics of the service provided by A&C Auditing and Consulting Company Limited 29

2.1.4 Characteristics of the company's clients 30

2.2 Sequence in auditing fixed assets in financial audits at A Company conducted by A&C Auditing and Consulting Company Limited 31

2.2.1 Audit planning 31

2.2.2 Audit iplementation 45

2.1.3 Completing the audit 56

CHAPTER 3: ASSESSMENTS AND RECOMENDATION TO IMPROVE AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY A&C AUDITING AND CONSULTING COMPANY LIMITED 58

3.1 Assessments on audit of fixed assets in financial audits conducted by A&C Auditing

and Consulting Company Limited 58

3.1.1 Strengths 58

3.1.2 Weaknesses 60

3.2 Recommendations for improving the audit of fixed assets conducted by A&C Auditing and Consulting Company Limited 62

3.2.1 The necessity for improving the audit of fixed assets conducted by A&C Auditing and Consulting Company Limited 62

3.2.2 Recommendations for improving the audit of fixed assets conducted by A&C Auditing and Consulting Company Limited 63

CONCLUSION 67

REFERENCES 68

APPENDIX 69

Apendix 2: Table of questions of existing client acceptance 77

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted BachelorThesis independently I did not use any outside support except for the quotedliterature and other sources mentioned at the end of this paper

I clearly marked and separately listed all the literature and all other sourceswhich I employed producing this academic work, either literally or in content

Hanoi, 28/4/ 2016

Signature

ABBREVIATIONS

ACCA Association of Chartered Certified AccountantsCIP Construction in process

CPA Certified Public Accountant

VAT Value added tax

VAS Vietnamese Accounting Standard

LIST OF TABLES

Table 1.1: Accounting items system of fixed assets 6

Table 1.2: Audit objectives in auditing fixed assets 11

Table 1.3: Audit program of fixed assets and construction in progress expenses .18

Table 1.4: Test of control of fixed assets 26

Table 2.1: Operational result of A&C Auditing and Consulting Co., Ltd……….35

Table 2.2: The estimated useful lives of tangible assets in A Company 41

Table 2.3: Preliminary analysis of fixed assets in A Company 43

Table 2.4: Extract of the working papers on understanding the internal control system of A Company 44

Table 2.5: Determining the general materiality of A Company 45

Table 2.6: Determining the materiality of fixed assets 46

Table 2.7: Audit program of A Company’s fixed assets 47

Table 2.8: Physical examination of fixed assets………54

Table 2.9: Extract of working paper No 4………58

Table 2.10: Audit conclusion on fixed assets of A Company 63

LIST OF FIGURES

Figure 1.1: Generalization of fix assets accounting procedures 7

Figure 1.2: Audit progress of fixed assets 13

Figure 2.1: Diagram of Management apparatus of A&C Auditing and Consulting

Co., Ltd……….36

Figure 2.2: Extract of working paper No 1 42

Figure 2.3: Extract of working paper No 2 53

Figure 2.4: Extract of working paper No 3 56

Figure 2.5: Extract of working paper No 5 59

Figure 2.6: Extract of working paper No 6 61

In the early 90s of the 20th century, the trend of international economicintegration of Vietnam has grown significantly Vietnam's economy has strongtransformation, transition economies from focusing mechanism bureaucracy tomarket mechanisms Open economy poses new requirements Before the demands

of economy, audit activities have been recognized in Vietnam with the appearance

of the independent organization of accounting and auditing in order to helpindividuals and organizations understand the knowledge, enhance understandingfinancial literacy and accounting in the new context The appearance of theindependent audit firm of international and domestic in Vietnam marks an importantmilestone in providing audit services and advice for those interested in the financialfigures in Vietnam Male After more than 20 years of development, audit hasbecome an intensive operation, a specialized science The financial statementsreflect the results of operations of the business in general on all aspects of thebusiness process A set of information obtained from the processing of thetransaction will eventually be reflected into parts, the items on the financialstatements Therefore, to achieve the purpose of a comprehensive audit of financialstatements the auditor should consider separate check their parts

Fixed assets and depreciation plays a very important role in the productionprocess of a corporate business So the accounting as well as the setting up of fixedassets depreciation expense should be recorded properly and accurately calculated.Moreover, the fixed asset items on the balance sheet accounts for a large proportion

of so errors of this accounting item often cause significant impact to the financialstatements of the enterprise Therefore, audit of fixed assets and depreciation play akey role in the audit of financial statements Aware of this, during practice at A&CAuditing and Consulting Company Limited - Hanoi Branch, I have chosen the

topic: “Improving the audit process of fixed assets in financial audits conducted

by A&C Auditing and Consulting Company Limited”

Research about auditing fixed assets in the process of auditing financialstatements at the A&C Company, first of all, help me practice theory learned aboutthe audit fixed assets at the National Economics University, later helped me bedirect observe, learn how to conduct audit of fixed assets by the company A&Cimplementation From that discovery of major irregularities in the audit fixed assets,learn and draw lessons for themselves about how to consult clients complete fixed

asset management processes that effectively and accounting fixed assets to matchwith the regulations and applicable accounting standards.

In addition to the Introduction and Conclusion, my bachelor thesis includesthree chapters as below:

Chapter 1: Theoretical framework on audit of fixed assets in financial audit conducted by A&C Auditing and Consulting Company Limited

Chapter 2: Practice of audit of fixed assets in financial audit conducted by A&C Auditing and Consulting Company Limited

Chapter 3: Assessments and recommendation to improve audit of fixed assets

in financial audit conducted by A&C Auditing and Consulting Company Limited.

Due to limited expertise and time to complete, numbers in my thesis have beenextracted from the data collected in the course of auditing fixed assets at ACompany conducted by A&C Auditing and Consulting Company Limited

And I am very grateful to have teacher Doan Thanh Nga, who helped me a lotwith this thesis, as my supervisor

CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF FIXED ASSETS IN FINANCIAL AUDIT 1.1 Features of fixed assets

1.1.1 Nature and content of fixed assets

Fixed assets are assets that have great value, long duration of use andinvolved in many business and production cycles Fixed assets is a significantlyproportion of accounting items on the balance sheet

Fixed assets are material and technical of the unit It reflects the productioncapacity and the technical level of the application of the unit operations Fixedassets is an important factor in the ability of sustainable growth, labor productivitygrowth, thereby the cost of goods and services will reduce

Fixed assets are assets used for production and business purposes and notfor sale In the course of use, the fixed assets are consumed Their value isconverted gradually into operating expenses and will be recovered from the sale ofgoods and services for business operations

 Tangible assets

According to Vietnamese Accounting Standards No 03, “assets withphysical forms held by enterprises for use in the production and trading in line withrecognized standards of tangible assets” Tangible assets include: buildings andstructures; machinery and equipment; means of transport, transmission equipment;equipment, management tools; perennial gardens, working animals; other type offixed assets

These assets are recorded as tangible fixed assets to satisfy simultaneouslyall four following criteria:

- Certainly economic benefit in the future from the use of such assets;

- The cost of such assets must be measured reliably;

- Time use estimates over one year;

- Qualified valid under current regulations According to Circular BTC dated 25/04/2013 of the Ministry of Finance shall prescribe thestandards of tangible assets must be valued at 30 million dong or more (startapplying for fiscal year 2014)

45/2013/TT- Intangible assets

Intangible fixed assets, according to the Vietnam Accounting Standards No

04, “the property has no material form, but determining the value and business byholding, use in production and business, providing services or other objects forleasing in line with standards recognized intangible assets” Intangible assetsinclude land use rights, distribution rights, patents of invention, trademarks…

An intangible asset is recognized as an intangible asset must satisfysimultaneously:

- Definition of intangible assets;

- Four recorded following criteria: certainly economic benefit in the future bybringing such properties; the cost of assets must be measured reliably; timeuse estimates over one year; having qualified for the value according tocurrent regulations

 Financial lease fixed assets

Financial lease fixed assets, according to Vietnamese Accounting Standards

No 06, "Leases", promulgated and published by Decision No 165/2002 dated31/12/2002 of the Minister of Finance is an agreement between two parties: lessorand lessee about the lessor transfer use rights of property to the lessee for a certainperiod of time to receive money to hire one or more times

Financial lease fixed assets is the leasing of assets which the lessor hastransferred substantially all the risks and rewards associated with ownership of theleased assets Property ownership can be transferred at the end of the lease term

A finance lease agreement must meet 1 of 5 conditions:

- The lessor transfers ownership of the property to the lessee at the end of thelease term;

- At the inception of the lease, the lessee has the option to purchase the leasedassets at a price lower than the estimated fair value at the end of the leaseterm;

- Duration minimum lease assets accounted for most of the time the economicuse of the property even though there is no transfer of ownership;

- At the inception of the lease, the present value of the lease paymentsminimum dominate the fair value of the leased asset;

- Leased asset is of specialized kind that only the lessee has the ability to use

no need to change, a major reconstruction

 Depreciation

Depreciation, according to Circular 200, dated 22/12/2014 of the Minister of

Finance is used to reflect the situation increased, decreased of depreciation andaccumulated depreciation of fixed assets and investment property during use due todepreciation, and other increase, reduce of fixed assets, investment property.

In principle, all fixed assets, investment property for lease of the businessrelated to the production, business (including assets not used, do not need, pendingliquidation) are subject to depreciation in accordance with current regulations.Depreciation of fixed assets used in production, business are accounted inproduction expenses, business expenses in the period; depreciation of assets notused, do not need, pending liquidation are accounted in other expenses Specialcases are not depreciated (such as fixed assets of reserves, fixed assets for socialsharing ), enterprises must comply with the provisions of the current law

Based on the provisions of law and management requirements of businesses tochoose one of the calculation methods, depreciation according to the law suit foreach fixed assets, investment property The depreciation method applied to eachfixed asset, investment property must be done consistently and may be changedwhen there is a significant change in the way economic interest receivable of fixedassets and investment property

Depreciation time and method of depreciation of fixed assets must bereviewed at least at each financial year end If the useful life of the asset isestimated big difference compared to previous estimates, the depreciation periodshould be changed accordingly Fixed asset depreciation methods are changed whenthere is significant change estimate how economic recovery of fixed interest In thiscase, must adjust the depreciation expense for the current year and the next year,and disclosures in the financial statements

1.1.2 Accounting for fixed assets

1.1.2.1 Accounting items system

Under current accounting system, accounting fixed assets at customers track

on the following accounts:

Table 1.1: Accounting items system of fixed assets

211 Tangible assets

2111 Buildings and structures perennial gardens

2112 Machinery and equipment

2113 Means of transport, transmission equipment

2114 Equipment, management tools

2115 Working animals

2118 Other type of fixed assets

212 Financial lease fixed assets

2121 Tangible financial lease fixed assets

2122 Intangible financial lease fixed assets

2136 Permit and license

2138 Other intangible assets

214 Depreciation of fixed assets

2141 Depreciation of tangible assets

2142 Depreciation of financial assets

2143 Depreciation of intangible assets

2147 Depreciation of real estate investment

In addition, in the process of accounting, accountant also uses other relatedaccounts such as: 217 - Real estate investment; 331 - Payable to sellers; 111 – Cash;

112 - Bank deposits…

1.1.2.2 Bookkeeping and documents system of fixed asset

The books are used for accounting purposes of fixed assets include: book offixed assets, registers of fixed assets, book for monitoring fixed assets where used,the subsidiary ledger, books of general

The system of accounting documents including: fixed assets increasedaccounting documents, fixed assets decreased accounting documents, depreciationaccounting documents of fixed assets

- Fixed assets increased accounting documents: contracts to buy fixed assets,bill of sale, delivery records of fixed assets, inventory records of fixed assets,amortization test records…

- Fixed assets decreased accounting documents: decision disposals of fixedassets, liquidation records, sale contracts, delivery records and amortization,

revaluation of fixed asset records

- Depreciation accounting documents of fixed assets: spreadsheets andallocate depreciation, registration tables depreciation rate

1.1.2.3 Organization of accounting for fixed assets

Transactions increased / decreased of fixed assets in company occursinfrequently but larger scale and related to multiple accounts on the critical nature

of financial reports of a business, such as capital investment, loan Can besummarized accounting process of fixed assets in the company through accountingfigure follows:

Historical cost Accumulated depreciation

Beginning balance Beginning balance

Increase in the Depreciation expensesperiod Liquidation Liquidation in the period

Ending balance Ending balance

Profit / Loss of liquidation Depreciation costs

Figure 1.1: Generalization of fix assets accounting procedures

1.1.3 Potential errors and frauds

When conducting the audit of fixed assets, the auditor needs to understand theunderstanding of audit risk with fraud and errors in the economic transactionsrelated to fixed assets Common risks in the audit of its fixed assets including:

1.1.3.1 The errors exist in the transaction of fixed assets

Fixed asset management is not close: incomplete records of fixed assets, fixedassets not transfer ownership to the unit but was recognized in the balance sheet; nobooks and cards detailing each fixed asset

The accountants forget to record its transactions related to fixed assets thatshould have been recorded in the book For example, accountant only recordincreased fixed asset accounting which are not recording transferred funds

Wrong determination of accounts in the case should have been Debit or Credit

in this accounting item but the accountant record to another accounting iteminconsistent with transaction such services incurred when businesses conduct minorrepairs of fixed assets, cost of repairs may that must be accounted into businessexpenses in the accounting periods, the accountant recorded in the Debit fixedassets (Acc 211) to increase the value of its fixed assets on the balance sheet

Errors in the record accounting process and the transfer of accounting books.This is a common mistake of fixed assets that auditors have to pay attention In therecord process, the accountant may inadvertently recorded the amount of bias, theupside than the amount stated in the documents; accountants can also confuse whiletransferring data from the journal to the ledger

Misclassification: assets are not sufficient indicators recorded fixed assets butare recognized as fixed assets, accounting confuse between tangible fixed assets andintangible assets Incorrect classification of intangible assets: land use rights, thecost of compensation and site clearance Noting increase their costs of intangibleassets that are not strictly defined as the cost of establishing the company, the costfor the period research…

Duplicate errors: recorded several times a transactions in the different books.Errors due to poor level of accountant lead to mistake when record transactionsarising in the book or when the new regime issued, accountant don’t know thecontent of all transaction or do not fully understand the transaction should lead towrong errors in the accounting process

1.1.3.2 The frauds exist in the transaction of fixed assets

In fact, the cause-related transaction of fixed assets being reflecteddiscrepancies by the accountant deliberately because many different purposes Interms of transactions nature, intentional violations are critical nature, the fraudsoften have arrangements so during the audit fixed assets items, the auditor need

special attention reviews Some fraud generally occurs in practice, such as:

 The frauds to embezzle appropriation difference value between invoices andactually incurred, such as false invoicing recorded additional cost of fixedassets by falsifying invoices when shopping or decrease the liquidation value

by collusion with third parties, repair documents, forgery of vouchersrelating to procurement fixed asset’s cost Accountant records repair costshigher than the fact to appropriate the difference as compared with thereality

 Records of bogus economic transactions involving fixed assets, such asrecord to the cost of fixed assets some incurred bogus cost as interestexpense; cost overhaul fixed assets non-upgrade, do not increase thecapacity or time to use

 Attempt to conceal documents, omitting the economic transactions in order

to achieve their own interests as deliberately not record the proceeds fromthe liquidation fixed assets fully depreciated to usurp part of this money

 Deliberately misapplied existing accounting regulations and legal documentsrelated as applicable depreciation rates faster than prescribed, depreciatedagainst fixed assets fully depreciated to increase spending charges to reducecorporate income tax

1.1.4 Key internal controls of fixed assets

In fixed asset management, companies track both in artifacts and value offixed assets

In terms of artifacts, manage the quantity and quality of the fixed assets Interms of quantity, fixed asset management department to ensure adequate supplyinformation on the capacity, to meet the requirements of the business In terms ofquality, ensuring the preservation to avoid damage, loss of detail parts reduces thevalue of fixed assets To do good work, each unit should develop the rules topreserves and use of fixed assets reasonably, consistent with its operationalcharacteristics Also to use effectively fixed assets, the unit should developeconomic and technical norms for each type, each group of fixed assets On thatbasis, the company assigned a reasonable plan, particularly for parts managementand individual employees to fit management requirements and characteristics of theunit With large-scale units, can choose the model of centralized management offixed assets and when need, be able to mobilize to the department Small-scale unitsare usually applied distributed management model, according to which the assetsare allocated to each department for preservation and use With medium-sized units,

fixed asset management model combining centralized and distributed generallymore appropriate In this case, the fixed assets are machinery and equipment of highvalue, used in many different parts are managed in general warehouse, fixed assetshas its own characteristics suitable for each department operation are assigneddirectly to the part to manage Organization management of fixed assets in line withmanagement requirements and operational characteristics will create favorableconditions to streamline operations, improve technology, efficiency of fixed assets

in industry

In terms of value, company determine the historical cost and remaining value

of investment, procurement and transfer fixed assets Company must calculate theexact, full depreciation of fixed assets and depreciation expense allocationappropriate to the product cost Also, they must closely monitor the situationincreased, reducing the value of fixed assets when conducting repairs, dismantling,upgrading, improvement and revaluation of fixed assets Based on the management

of fixed assets in terms of value, the unit will adjust the fixed assets plan (increasing

or decreasing) by types of fixed assets in line with operational requirements of theunit

To manage fixed assets, each company are building regulations, guidelinesand procedures for preserving and amortization All parts in the company mustrespect and strictly implement the regulations Some of the principles andprovisions of units often posed include:

Firstly, the division of responsibility, there should be a separation between thepreservation and recording the transaction Accordingly, the fixed asset managermay not simultaneously be the fixed assets accountant If not separate the two types

of transactions will easily occur irregularities or control capability is limited

Secondly, need to clearly define the authority of each management level forthe ratification of its transactions relating to purchase transfer, liquidation or sale offixed assets Fixed assets have big value so this rule should be especially respected.Thirdly, a division of authority approval with the preservation of fixed assets.Avoid using fixed assets conservator is also the decision on the sale and transfer ofassets, easily lead to loss of property caused by the abuse of power free sale,transfer or liquidation of fixed assets

Finally, build storage fixed assets systems such as warehouse, fencing; assignresponsibility to protect, provisions strict procedures for the transportation of fixedassets from the company

Due to the great value of fixed assets and long-term use so the management of

fixed assets requires tight right from the procurement, transfer to the liquidation offixed assets In the accounting period, strictly implement the process of transferringsecurities from fixed assets will create favorable conditions for management,inspection and control of fixed assets.

1.2 Audit objectives in auditing fixed assets

Fixed assets are always accounted for a large proportion in the total assetvalue of the units and depending on the business, the business situation ofenterprises So in any case, fixed assets reflects device status and the technical basis

of the enterprise This make fixed assets become an important accounting itemwhen conducting audit financial statements On the other hand, because the cost offixed assets is huge and slow capital turnover ability so conducting audit fixedassets items will help auditors assess the economics and efficiency of investment infixed assets thereby making capital investment orientation and sources used toinvest more efficient

In every job, there is always need objectives to aspire to, and with operationsaudit too Audit objectives are needed to reach, at the same time is a measure of theresults for each of the audit Audit procedures for fixed assets towards the followingobjectives:

Table 1.2: Audit objectives in auditing fixed assets

- Transactions increased, decreased, depreciation in the year are real

- All fixed assets are presented in the balance sheet (including financial lease fixed assets) actually exist in reality at the end of the fiscal year

Completeness - The transactions and amounts arising are adequately reflected,

expenses and income from the liquidation or sale are fully accounted

- All fixed assets owned by units at the end of the fiscal year must be recorded on the balance sheet

Ownership Fixed assets were purchased and fixed assets were recognized in the

balance sheet are owned by enterprise or enterprise has long-term control

Assessment

and allocation

- Historical cost of fixed assets and the remaining value are assessed

in accordance with accounting principles

- Depreciation is calculated in accordance with consistent between periods and reasonable allocation in expenses during the period, and

in accordance with current regulations

Exactly - Depreciation is calculated according to the percentage Purchases in

the current year on the list of buying must uniform with general book; increase, decrease, depreciation is recorded correctly and cumulative amount in line with aggregate accounts on the books

-The details of balance on ledger must match the data on the details book of fixed assets

- The data transferred between the accounting books and financial statements must be done correctly and in accordance with accounting principles

sub Announced the depreciation method

- Fixed assets are shown in groups of assets with the same depreciation rate

1.3 Sequence in auditing fixed assets in financial audits

Process audit is an audit methods system to help the auditors collect sufficientaudit evidence to achieve the audit objectives Audit fixed assets items also need tocomply with the general audit of the financial statements All companies areincreasingly in development and improvement the audit fixed assets, in order toconstantly improve the quality of services provided, the search market

Audit fixed assets also common sequence of the audit financial statementsconsists of three phases: audit planning, audit performance and audit complete.However, depending on the scope of the audit and the specific characteristics of thecustomer that the audit procedures have been changed accordingly to ensure that theaudit objectives

Figure1.2: Audit progress of fixed assets

1.3.1 Audit planning

Audit planning is the first step in the work to organize the audit, have animportant role to govern the quality and overall effectiveness of the entire audit.During this period, technicians perform the work necessary to prepare an audit planas: assess the acceptability of the audit and determine the scope of the auditobjectives, selecting the audit staff of contracting accountant; gather information,and most importantly is design a specific audit program to perform the audit

When planning the audit, the need to understand the following issues:

1.3.1.1.Innial audit planning

Auditors assess whether to provide audit services for clients or not based onquestionnaires assessed accepted existing customers

1.3.1.2 Understanding the entity’s business and its environment

Gather information about the legal obligations of the client For the audit fixedassets, the need to collect legal documents and records such as minutes of thecapital contribution, handing over funds, the documents relating to the contribution

of capital in fixed assets

Learn about the business situation of the customer Its include businessoperations and business results of the client, finding out this information will helpauditors determine whether clients have multiple fixed assets or not and fixed assetshave a material effect to the financial statements of the client or not

Business environment and external factors of production and business have animpact on client as economic - social, legal

The client's objectives and strategies that business leaders set out to achievethis goal The strategic objectives that will tell in future enterprises have invest,purchase, liquidation or sale of fixed assets or not

1.3.1.3 Preliminary analytical procedures

Analytical procedures are applied to all audits and are implemented in allstages of the audit by the auditors According to the Vietnam Auditing Standards

No 520- Process analysis: "Analysis is the analysis of data, information, theimportant ratio to find out trends and the relationship or there is a conflict betweenrelevant information with the expected value”

After collecting preliminary information about customers, auditors start toperform analytical procedures In this stage, auditors often adopt two most popularanalytical procedures:

 Horizontal Analysis: For fixed assets item, auditor can compare figures lastyear with current year, which saw these fluctuations and to determine thecause Also auditor can compare client’s information with data from theindustry

 Vertical Analysis: the analysis is based on comparison of the proportion ofthe targets and items on the financial statements For fixed assets, auditorcan calculate a margin as the ratio of self-financing, investment yield

1.3.1.4 Understanding internal control and assess control risk

The research for internal control of client and assess control risk help auditors

to design audit procedures appropriate for accounting items of fixed assets, assess

the volume and complexity of the audit, from that can estimate the time anddetermined the audit focus.

The more effective internal control, the smaller control risk and vice versa, thehigher control risk, the internal control weaknesses

Auditors conducted survey internal control on the following two main aspects:

- How internal control for fixed asset items are units design?

- How internal control for fixed asset items are units perform?

Auditors conducted surveys internal control on the following forms:

- Interviews with employees of the Company

- Visiting the fact of fixed assets

- Check documents related to fixed assets

- Get confirmation in writing by a third party (if necessary)

- Observe procedures for Internal Control and Risk of fixed assets

- Reworked control procedures

After carrying out the above work, the auditor should assess control risk anddesign tests of control This work was carried out as follows:

- Define the type of fraud and errors may occur in fixed asset items

- Evaluate the existence of internal control in detecting and preventing fraud anderrors

- If the level of risk control assessment is not as high as the maximum and auditorsdeems potentially reduce control risk was assessed down to a lower level, auditorwill define necessary test of control Conversely, if the control risk assessmentdeems high and is unable to reduce in fact, the auditor should not perform test ofcontrol that must be conducted in the substantive test in reasonable level

For fixed assets items, the auditor need client’s information about internalcontrol system for this item The system is considered to be an effective isexpressed through the protection and proper management When learning systemfor internal control of fixed assets, auditor need to consider the following issues:

- Enterprise has planning and budgeting for shopping fixed assets or not?

- Enterprise has regular reconciliation between the subsidiary ledger and generalbook or not?

- There are periodic inventory and compare it with the accounting books or not?

- The difference between the estimate and the actual price may be reviewedregularly and approved or not?

- When selling or liquidating fixed assets, company has established the council ofliquidation or sale including members as prescribed or not?

- Corporate has applied accounting regime, the method of depreciation andamortization is appropriate or not?

Besides auditor also consider possible asset management as well as thedevelopment of regulations, guidelines and procedures on asset preservation

1.3.1.5 Assessment of audit materiality and audit risks

Auditor conduct audit procedures initial estimates for the materiality to theentire financial statement then allocated to the parts of the financial statements.Based on the changes, the characteristics of the business activities of enterprises auditor allocate initial estimate of materiality for fixed assets From there, in theaudit implementation stage, auditor determine the difference may be acceptable.When the difference is larger, depending on the level affect the financial statements,and require adjustments to be accepted by unit that the auditor express an opinionabout the acceptance or exclusion criteria fixed assets and depreciation

Audit risk - AR is determined:

Control risk: assessing audit risk is mainly based on information about thevalidity, through the research on Internal Control systems which based oninterviewing customer and observing real situation Weak controlling environmentwill make it more difficult to prevent, detect violations, so it leads to high risk andvice versa

Detection risk is the chance that an auditor will not find materialmisstatements relating to an assertion in an entity's financial statements throughsubstantive tests and analysis Detection risk is the risk that the auditor willconclude that no material errors are present when in fact there are.

Audit Risk: Auditors should assess the possibility of auditors in case they

cannot detect errors related to fixed asset items Thus, auditors should be alert toavoid these situations that may lead to undetected errors, such as detect evidencebut no noticeable flaws; incompletely implement audit procedures that leads toignored violations

Materiality and risk have close relationships with one another, if the level ofacceptable error (or materiality) are appreciated more, the audit risk will be loweredand vice versa In audits, audit risk as small as possible because it ensures the bestaudit results

When evaluating potential risks, auditor based on factors such as:

- The nature of business clients: clients operating in the manufacturing sectorhave the largest volume of fixed assets and the potential risks related to the fixedasset item is higher than clients active in the field of trade or services

- The results of the previous audit

1.3.1.6 Designing audit program

Audit program of fixed assets was designed in three parts: test work, testanalysis and test directly the balance The content of audit program usually consists:documents that requires customers to prepare; the specific audit objectives for fixedasset items; the work that need to be carried out, the specific audit procedures:analytical balances procedures of fixed assets, detailed audit procedures for increase

or decrease transactions, and procedures to check the balance of fixed assets.(Appendix No 1)

1.3.2 Audit implementation

Conducting an audit is the process of using the audit techniques to adapt tospecific audit objectives to gather audit evidence Perform audits undergone threesections: performing tests of control, analytical procedures and tests of detail

1.3.2.1 Performing tests of control

The objectives of the test of control: understanding structure of internalcontrol for fixed assets, assess the level of control risk Test of control is done onlyafter understanding internal controls and is considered valid Meanwhile, test of

control are underway to gather audit evidence about the design and the operation ofinternal control Auditor perform control testing with fixed assets items through anumber of methods are mainly supervising the use of fixed assets at the unit,interview relevant persons, inspect the books and documents, perform the controlprocedures In this phase, test of control often conducted by auditors according tothe audit objectives For audit fixed assets, test of control carried out as follows:

Table 1.4: Test of control of fixed assets Objectives Mainly internal control process Common test of

control

Existence - Fixed assets recorded in the books is

now managed by company, independent fixed asset management division and the separation this department with the recording book parts

- The true of dispatch suggest purchase offixed assets, purchase approval dispatch, contracts, minute of the delivery of fixed assets in use

- The liquidation and sale documents of fixed assets had canceled, avoid using again

- Observe fixed assets inthe unit and considering the separation between the management function and recording book with preservation department

- Check documents, documents circulation

of internal control

- Check the sign of the cancellation

Sufficiency Each fixed assets has a dossier set, are

recorded when received until sale or liquidation of fixed assets The recording,calculating historical cost based on the basis of valid documents mentioned above

Check the completeness

of the documentation related to fixed assets

These properties not owned by the enterprise, shall be recorded outside the balance sheet

Combining physical examination to check documents, legal records of property ownership

The

approval

Ratification of these transactions increased, decreased depreciation of fixed assets are decentralized to the managers of the business

- Interviews with those involved

- Check mark of approval

Objectives Mainly internal control process Common test of

control

Accuracy All documents related to the purchase

and liquidation of fixed assets in the unitsare set at accounting department and properly calculated The accumulating onbook detailed and aggregated book is

accurate and complete inspection.

- Review sign checks of internal control system

- Adding back some of fixed assets arising documents

Timeliness The recording is done timely as soon as

transactions arising and meet the requirements of the financial statements

Check the completeness and timeliness of the recording

- Regulations on the order of recording transactions involving fixed assets from detail book to general book

- Interviews with responsible people to learn classification of fixed assets in the enterprise

- Check account system and the accounting classification

- Considering the order book and sign of

internal control

However, in practice, due to the nature of fixed assets are an item has fewtransactions, each arising transaction have great value so auditor often decide not toperform tests of control that goes directly to the substantive test

1.3.2.2 Performing analytical procedures

Before checking details of the rise or fall of the year, the auditor should ensurethat the data on the details book equal the data had reflected on the account ledger.For this, auditors need to compare between the total numbers on the book detailsand the data on the ledger Auditor will collect or establish a self-analysis whichlists the beginning balance and the details of an increase or decrease to thusproducing the final balance Ending balance will be checked through the documentsand compare them with the previous year's audit Assets also rise and fall of theyear in the audit process, auditors will collect more detailed evidence about the ups

or downs of assets

In this period auditors can consider some of the following financial ratios:

- Comparing ratio of total depreciation cost divide total historical cost offixed assets of this year with previous years in order to identify, understandmistakes can have when conducting calculate depreciation in Audit period

- Comparing the ratio of total accumulated depreciation with the totalhistorical cost of fixed assets in order to identify, find the errors that may occurwhen carrying accumulated depreciation

- Comparing the total cost overhaul ratio with the total historical cost of fixedassets or comparing total costs overhaul with the previous year to identifyproduction and business costs are capitalized or expenses capital constructioninvestment is skewed to reflect the cost of production and business

- Comparing the ratio of total historical cost of fixed assets divide the totalproduction value in previous years to identify fixed assets not used in the production

of business or have been liquidated or sold but not yet carrying

- Comparing total arising fixed assets with total increasing historical cost offixed assets in the previous year

- Assess the increases fixed assets (especially the large value transactions)have reasonable with business operation or not

- Assess total purchases, investment, receiving to comment fluctuations onbusiness and economic conditions

1.3.2.3 Performing tests of detail

a Tests of detail of increasing fixed assets transactions

For each company, the amount of investment in the procurement, leasing offixed assets are usually very large So the records of business increased fixed assetsdirectly affect the accuracy of financial statements

- Check the seller's invoice, the delivery records of fixed assets, capitaldelivery records, minute of settlement construction in capital constructioninvestment, minutes of the joint venture

- Specific inventory of tangible fixed assets

- Check the procurement process, the cost of fixed assets formation

- Check the asset inventory records In case of necessity, can directly observe

- Check the terms of the finance leases

- Considering the fixed assets have been formed by the money of theenterprise or enterprises must incur costs to purchase fixed assets or not?

- Summary the list of procurement, investing, allocating to compare with thetotals in general ledger

- Check the increased fixed assets documents and the accounting entries in theaccounting books based on the accounting rules of the current accounting system.

- Check increased fix assets transaction near the day (before and after thestatement date) established the accounting report to examine the recording

- Check the original documents related to the reduction of fixed assets duringthe period (liquidation decisions, transfer of internal decisions, invoices )

- Check accounting of fixed assets decreased due to the transfer, liquidation orsale during the period

- Check the details of these transactions reduced fixed assets

- Analysis of interest, income from liquidation operations, the sale of fixedassets

- Consider additional process, the process used to calculate the level of fixedassets depreciation of each asset

- Compare the level of depreciation and costs related to reduce fixed assets

- Recalculate the amount of interest on disposals of fixed assets in order tocompare with the data in the accounting books

c Test of detail of balance

Beginning balance: depending on type of clients (old client or new client)

- If previous year the audit performed by the auditing company isimplementing current year's audited financial statements and opening balances havebeen determined to be true, it is not necessary to perform additional auditprocedures

- If last year the audit performed by other auditing companies, auditors need toconsider the audit report of previous year, if it has been reliable, the auditors canaccept audit results previous year Then just consider the move is correct or not

- If the unaudited financial statements or previous year the audit was carriedout by other audit firms and auditors do not trust the results or audit report not fullyaccept a full for fixed assets balance, meanwhile, auditor will apply additional auditprocedures: audit demonstrated the beginning balance, sampling the fixed assets tocheck the actual existence of the assets

Ending balance: confirmed on the basis of the audit beginning balance andincreased or decreased transactions in the period

- If the beginning balances performed by the auditing company isimplementing this year's audited financial statements and this number is determined

to be true or if the financial statements are made by another company but the audit

reports of last year can be reliable, then the ending balance will be carried outcalculations according to the formula: ending balance = beginning balance +increased amount - decreased amount.

- If the unaudited financial statements or the audit previous year was carriedout by other audit firms and auditors do not trust the results, they must applyadditional audit procedures to consider whether beginning balance is correct, thenperform calculations the ending balance on above formula

Auditors will conduct the physical examinations to collate with the endingbalance on accounting book

d Test of detail of depreciation

 Check the time / rate of depreciation of fixed assets is reasonable or not.Need to consider:

- Depreciation timeframe stipulated in Circular 45/2013 / TT-BTC dated04/25/2013 of the Minister of Finance

- Profit losses or liquidation of fixed assets in previous years

- The lease term (for fixed assets financing leasing)

- Consistency with the previous year

 Evaluation of any events and circumstances may lead to changes in theuseful life period of fixed assets

 Check sampling the depreciation of fixed assets during the period

 Considerations to ensure fully depreciated fixed assets are not calculatedepreciation anymore

 Review to ensure all fixed assets (excluding fully depreciated fixed assets)are calculated

 For intangible fixed assets are land use rights with a term: review the expirydate on the certificate of use to make sure the depreciation time isappropriate

 Synthesis of depreciation of fixed assets are not used or used not forproduction and business activities purposes to exclude when determiningtaxable income

1.3.3 Completing the audit

Audit completion is the final stage of the audit, this phase is shown according

to the following steps: review the events after the accounting cut-off date, evaluatethe results and announcing the results of audit

1.3.3.1 Review the events after the accounting cut-off date

The audits were conducted after the end of the accounting year Thus, during

the period from the balance sheet date until the completion of financial statementsprobable events that affect the financial statements, auditors are responsible forreviewing events occurring after the balance sheet date.

To collect and review the events that occur after the date of the financialstatements, the auditor can use the following procedure:

- Interview with the Managing Board

- Review the internal report after the date of the financial statements

- Review of the book is made after the date of the financial statements

- Check the records released after the date of the financial statements

- Check the result of unanticipated liabilities are rated as critical

- Consider fixed assets unused and sold after the closing date has cost prices belowhistorical cost recorded on the books

Auditors usually checks all transactions occur at the intersection of thesettlement period Conducted a review of the measures that the managementapplication to ensure those events occurring after the balance sheet date have beenidentified

1.3.3.2 Evaluate the results

Auditor will perform integrated assessment of the errors and frauds Auditorswill draw conclusions about the financial statements had recorded all fixed assets ofbusiness at the time stated in the balance sheet to be honest or not based on ageneral evaluation of the errors detected

First, the auditor should assess aggregate immaterial errors to establish theaccounting adjustments and synthesis of the expected errors then compare to theflaws can skip to watch can accept fixed assets item or not Then, the auditorconduct aggregate errors and frauds about fixed assets items to see they exceed themateriality of the financial statements or not, while auditors must ensure theaccompanying explanations are made for each fixed assets such as:

 The depreciation method was applied

 Time use and depreciation rates were applied

 The entire depreciation for the year

 Total fixed assets and the corresponding accumulated depreciation

 Liens and restrictions for fixed assets, if any

On the basis of synthetic conclusions on all portions of the audit, specifically,auditors established audit report including giving their opinion about thetruthfulness and relevance of financial statements audit unit

1.3.3.3 Announcing the results of audit and issue audit report

After completion of the about works, the auditors draw up a report section sum

of the part, often, the partial fixed assets unable to comment immediately but must

be combined with the results of the other sections In cases where audit fixed assetshas restrictions on the scope of the audit that cannot collect sufficient audit evidence

to confirm the truthfulness and reasonably, auditors can make except opinion

The end of audit, auditors and auditing company will establish and issue auditreports in accordance with auditing standards Also auditors can establish andrelease manage letter to consult clients about the existence of the audited units

CHAPTER 2: PRACTICE OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY A&C AUDITING AND CONSULTING COMPANY

LIMITED

2.1 Overview about auditing firm - A&C Auditing and Consulting Company Limited

2.1.1 History of development of A&C Auditing and Consulting Company Limited

A&C Auditing and Consulting Co., Ltd is the State Enterprise was establishedunder Decision No 140-TC / QD / TCCB, 26/03/1992, Decision No 107-TC / QD /TCCB, 13/02/1995 of the Ministry financial and operating under the businesslicense number 102218, 13/03/1995 by the Planning Committee of Ho Chi MinhCity After more than 20 years of operations, the Company Auditors andConsultants has not stopped growing in number and quality of services provided.Along with the development of Vietnam's economy in general and inparticular the areas of auditing, A&C Auditing and Consulting Co., Ltd Department

of Finance has been selected as one of the first major companies conducted by theFinance Ministry transferred change the form of State Enterprises into Joint stockcompany under the decision No 1962 / QD-BTC, 30/06/2003 by the Minister ofFinance The company operated under the business license registration number

41030011964 by the Department of Planning and Investment of Ho Chi Minh City,09/12/2003

Under the provisions of Decree No 105/2004 / ND-CP dated 30/03/2004 andDecree No 133/2005 / ND-CP dated 31/10/2015 of the Government on theindependent audit, JSC audit and Consulting has officially transformed intoAuditing and Consulting Co., Ltd from the date of 06/02/2007 by the certificate ofbusiness registration No 4102047448 by Department of Planning and Investment of

Ho Chi Minh City

Auditing and Consulting Co., Ltd has officially changed its name and operateunder the new name is A&C Auditing and Consulting Co., Ltd by the certificate ofregistration of businesses by the Department of Planning and Investment of Ho ChiMinh, 06/02/2013 Currently, A&C Auditing and Consulting Co., Ltd is operatingunder the registration certificate changes now 8th by the Department of Planning

and Investment of Ho Chi Minh City dated 08/11/2014.

A&C is one of the first company and has for many years been the StateSecurities Commission approved the audited eligible organizations listed

According to data of the Association assessed auditors practicing Vietnam(VACPA) at the annual meeting of directors of audit firms, the company A&C israted as follows:

A&C is one of six audit firms have the largest revenue in Vietnam;

A&C is one of five auditing firms have the largest number of clients inVietnam;

A&C is one of five auditing firms have the largest number of employees inVietnam;

A&C is a company have the biggest number of auditors in Vietnam;

A&C is one of three audit firms have the highest revenue from services thataudit completed projects in Vietnam;

A&C is one of three audit firms have the highest revenue from trainingservices financial, accounting and auditing in Vietnam;

A&C is one of three audit firms have the highest revenue from customers asState Enterprises in Vietnam

From 5/2010, A&C is an official member of the Group auditor Baker TillyInternational (BTI) in UK, the 8th largest auditing corporate in the world As aBTI's membership, A&C has confirmed the company's position in the internationalarena and is an advantage to enhance the expertise and experience of customerservice

In addition to its headquarters in Ho Chi Minh City, A&C also has branches inHanoi, Nha Trang and Can Tho City

18 Tran Khanh Du, Nha Trang City, Khanh Hoa

Phone: (84-58) 3876.555 - 3876.836

Fax: (84-58) 3875.327

E-mail: kttv.nt@a-c.com.vn

BRANCH IN CAN THO

I5-13 Vo Nguyen Giap, Phu Thu Ward, Cai Rang District, Can Tho

Phone: (84-71) 3764.995

Fax: (84-71) 3764.996

E-mail: kttv.ct@a-c.com.vn

2.1.2 The characteristics of A&C Auditing and Consulting Company Limited

After more than 20 years of operation (1992-2015), the company A&C isproud to have a team of staff were recruited and trained in a continuous andsystematic

With over 380/432 direct employees serve clients, the company has broughtexperience, skills and high sense of responsibility to meet the service needs ofincreasingly diverse customers

The staff of the company include:

Auditors have Audit Certificate issued by the Finance Ministry: 75 people

Appraisers have Appraisers card about price: 08 people

Auditors have ACCA and CPA Australia International: 06 people

Table 2.1: Operational result of A&C Auditing and Consulting Co., Ltd

Revenue (VND) 105,445,674,070 114,772,332,460 120,892,542,820Profit after tax (VND) 1,241,342,830 1,164,971,055 1,283,552,860Number of staffs 430 425 432

Auditors have Audit

Certificate issued by

the Finance Ministry

72people

73people

75people

Auditors have ACCA

and CPA Australia

6people

6people

6people

BOARD MEMBERS

BOARD OFDIRECTORSINTEGRATED

(2 Audited financialSECRETARY 27 6 AUDITED FINANCIALDONG KHOI AC&C CO.,2 BASIC

Figure 2.1: Diagram of Management apparatus of A&C Auditing and

Audited financial statement

Audit of financial statements is major operating of A&C Audited financialstatements process of the A&C is built in accordance with environmental laws ofVietnam and on the basis of compliance with the Vietnamese Auditing Standards,the rules of professional ethics and international standards in the field of auditing.Besides, the company also carried out the audit work services, internal audit,depending on client requirements

In the course of audit, A&C is always associated with supporting informationand advice to enterprises to perfect the system of internal control, complete theorganization of accounting, financial management of the client

Basic construction audit

Evaluation, audit settlement investment and construction is one of theoutstanding performance of A&C Company The A&C services that have been andare ready to provide clients in all industries across the country The services ofA&C highlights include: audit valuation estimates and final settlement value ofinvestment projects, basic construction; appraisal of the property value as housing,land, machinery and equipment, transport …; determining the value of enterprise toserve equitization purposes; investment and basic construction advisory

Advice on governance, accounting, tax

With a team of consultants with extensive knowledge, legal knowledge andpractical work experience, A&C provides consulting services are varied, including:

- Tax Consulting: Consulting for businesses on the tax law (VAT, CIT )simultaneously perform tax registration services, registration of self-printedinvoices, refunds, complaints taxes …

- Consulting on issues related to accounting: consulting organization ofaccountants, accounting apparatus and improving the accounting, consultingmethod product costing

- Consulting on financial matters, business management: consultation toestablish and perfect the system of financial management, internal control systems,analyzing the financial position of the business, advice on stock enterpriseequitization and listing of securities on the stock market

- Legal consulting: Prepare files and perform the registration procedureestablished Vietnam Business and Enterprises with foreign investment capital,adjusted investment licenses, investment certificates, certificates businessregistration, perform the procedure division, separation, consolidation, merger anddissolution of the enterprise

- Other consulting activities: carried out at the request of customers in terms ofrelated legislation, management, investment.

Training auditing, accounting - finance - taxes and other related programs inthe field of market economy

- Training topics: A&C organize courses to update knowledge of finance,accounting, auditing, tax, business management, investment in capitalconstruction There courses was held at the request of the customer to equip andenhance professional knowledge for staff, contributing to the sustainabledevelopment and the efficiency of enterprises

- Organization of professional activities and provide new textual information

of State issued: timely support information necessary for business operations ofclients, monthly, A&C hold a professional activities and provide new informationissued by State This program is a very useful for people who work in financialmanagement, accounting, tax in enterprises and organizations

- Internal training: This activity is maintained regularly and continuously toprofessionalize staff, ensuring steady development of the market economy andadapt to the process of economic integration with the region and the world

In the future, the company still holds works on all services including: financialstatement audit, basic construction audit, consulting and training In addition, thecompany will focus on developing the strength of their services is auditing thefinancial statements and consulting, and will provide accounting services such asaccounting records ledger, provide financial statements report, tax report,accounting software installation …

2.1.4 Characteristics of the company's clients

So far, the company A&C has been serving nearly 2,000 active clients in allareas, including:

Enterprises with foreign investment, business cooperation contractsoperating under the Law on Foreign Investment in Vietnam

The Vietnam enterprises of all economic sectors operating in the fields ofmanufacturing, construction, trade, hotel services, banking, transportation, oil andgas,

The agencies and international organizations and national, representativeoffices and individuals wishing to provide services

And other clients

In particular, in the last 3 years, the Company has provided auditing servicesfor financial statements many corporations and large organizations such as:

Vietnam Posts and Telecommunications Group (VNPT)

Vietnam Development Bank (VDB)

Company Limited Corporation Saigon Newport

Transport Corporation (Hanoi Transerco)

The Vietnam Post and Telecommunications Company (VN Post)

Song Da Corporation

General Insurance Corporation of Post and Telecommunications (PTI)

The Northern Food Corporation (VNF1)

Group IPA

Corporation Investment and Industrial Development - Limited (BECAMEXIDC CORP.)

Trade Union Cooperative Ho Chi Minh City (Saigon CO.OP)

Phong Phu Corporation

Tin Nghia Corporation

Maritime Transport Joint Stock Company Vietnam (Aside)

Pharmaceutical Joint Stock Company in Hanoi Medical Equipment(HAPHARCO)

JSC International Son Ha

2.2 Sequence in auditing fixed assets in financial audits at A Company conducted by A&C Auditing and Consulting Company Limited

2.2.1 Audit planning

2.2.1.1 Innial audit planning

A is a traditional client of A&C so after receiving an invitation audit letter of

A, A&C includes assessing whether to continue providing audit services to Athrough questionnaires assessed accepted existing customers (Appendix No 2)Assess the level of risk of the contract: Average

Conclusion: continue to provide service to client This is a very important job,

it helps audit companies avoid audit risk undesirable A is the client's traditional soA&C should be finding out collecting information on customers simpler Auditorreview client information on a permanent audit file and adds some new information

2.2.1.2 Understanding the entity’s business and its environment

The objective of this phase is to help auditors get an understanding aboutproduction’s characteristics of business, thereby they can determine the focus andthe need to carry out the audit process

The information that need to be collected: To get an understanding about the