Chapter I: Theoretical framework on audit of fixed assets in financial audits Chapter II: Practice of audit of fixed assets in financial audits conducted by Vietnamese audit firms Chapter III: Assessment and recommendations to improve audit of fixed assets in financial audits conducted by Vietnamese audit firms CHAPTER I: THEORETICAL FRAMEWORK ON AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS 1.1. Features of fixed assets 1.1.1. Nature and content of fixed asset Definition Fixed assets are assets that have large value and can be used for a long time. Fixed assets are material and technical base of the enterprise. Fixed asset is the specialized production materials in the manufacturing; it has big value and can be used on many producing cycles. Fixed asset play an important role in creating possibilities for sustainable development, increase labor productivity, thereby reducing expenditures, lower cost products and services. Therefore, identifying an asset is recorded as fixed assets or not significantly affects the results of business activities report of enterprises. Type of fixed assets Fixed assets are classified in several ways. Based on these criteria, certain fixed assets can be divided into several groups to manage fixed assets efficiently. According to the uses of fixed assets, fixed assets can be divided into four types: Fixed assets used in producing : Administrative fixed assets; Fixed assets welfare; Fixed assets pending. This classification provides the user with sufficient background information on the Fixed Asset structure, thereby allocating accurately the depreciation used by the user and taking measures for dealing with Fixed Assets. the reason. This is the basis for the auditors assessment of the depreciation cost. According to formation, fixed assets are divided into four categories Fixed assets that the State provided its capital; Fixed assets are constructed and procured with loans; Fixed assets are constructed and procured by selfsupplemented capital sources; Fixed assets joint ventures, affiliate with other companies. According to the classification above, managers can determine exactly the sources of capital formation and recovery in the fixed assets and at the same time take measures to mobilize and efficiently use capital for fixed assets According to ownership, fixed assets are divided into two types: Fixed assets under the ownership of the enterprise; Fixed assets outsourced. This classification helps users distinguish the rights and obligations of the enterprise in managing fixed assets, as well as a basis to examine the rights and obligations of the enterprise for fixed assets is presented on balance sheet accounting.
Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga TABLE OF CONTENTS LIST OF TABLE AND DIAGRAM Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga INTRODUCTION Along with the development of the economy, the independent audit has been formed and developed in Vietnam for more than twenty years; it has become the inevitable demand for business activities and contributed into increasing quality of companies’ management Independent auditors have participated actively in the examination, evaluation and certification of the reliability of the financial information, significantly contributed to the operational restructuring, innovation, equitized enterprises and attracting foreign investment, creating favorable conditions for economic development Independent auditor has confirmed the important role in the economy On the financial statements, fixed assets are a high value item and often contain fraud or error That is the reason why companies can reflect the value of fixed assets more or less than actual value for many different purposes, such as: In order to increase the total value of assets, increased revenue, or to demonstrate the ability to expand production, future potential of the business Therefore, the accountants also often rationalize business results by accounting additional depreciation expenses, expenses for overhaul of fixed assets, in order to increase the cost of capital; thereby reducing the net profit for the tax evasion purpose or accountants’ benefits Moreover, auditors have to face a big risk for fixed assets, because: In many cases, the auditor might not understand the nature of the technology of fixed assets so auditor cannot determine the net value of fixed assets Meanwhile quality and value of fixed assets not only affect the situation of financial in fiscal year but also affect the producing, consumption and record revenue of following fiscal year Therefore, in financial statements, auditing of fixed assets is a difficult job, take a lot of time, effort and very important Being aware of the importance of auditing of fixed assets, I choose: “Research on auditing of Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga fixed assets in financial audit” as research topic My research is divided into three chapters: Chapter I: Theoretical framework on audit of fixed assets in financial audits Chapter II: Practice of audit of fixed assets in financial audits conducted by Vietnamese audit firms Chapter III: Assessment and recommendations to improve audit of fixed assets in financial audits conducted by Vietnamese audit firms Despite my best effort, due to limited knowledge and experience, my subject matter is inevitably lacking, I look forward to receiving teacher‘s comments so that I can improve this project further I sincerely thank to PhD Doan Thanh Nga for helping me complete this topic Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga CHAPTER I: THEORETICAL FRAMEWORK ON AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS 1.1 Features of fixed assets 1.1.1 Nature and content of fixed Definition asset Fixed assets are assets that have large value and can be used for a long time Fixed assets are material and technical base of the enterprise Fixed asset is the specialized production materials in the manufacturing; it has big value and can be used on many producing cycles Fixed asset play an important role in creating possibilities for sustainable development, increase labor productivity, thereby reducing expenditures, lower cost products and services Therefore, identifying an asset is recorded as fixed assets or not significantly affects the results of business activities report of enterprises Type of fixed assets Fixed assets are classified in several ways Based on these criteria, certain fixed assets can be divided into several groups to manage fixed assets efficiently According to the uses of fixed assets, fixed assets can be divided into - four types: Fixed assets used in producing : Administrative fixed assets; Fixed assets welfare; Fixed assets pending This classification provides the user with sufficient background information on the Fixed Asset structure, thereby allocating accurately the depreciation used by the user and taking measures for dealing with Fixed Assets the reason This is the basis for the auditor's assessment of the depreciation cost - According to formation, fixed assets are divided into four categories Fixed assets that the State provided its capital; Fixed assets are constructed and procured with loans; Fixed assets are constructed and procured by self-supplemented capital Trần Ngọc Mai - Supervisor: PhD Doan Thanh Nga sources; Fixed assets joint ventures, affiliate with other companies According to the classification above, managers can determine exactly the sources of capital formation and recovery in the fixed assets and at the same time take measures to mobilize and efficiently use capital for fixed assets - According to ownership, fixed assets are divided into two types: Fixed assets under the ownership of the enterprise; Fixed assets outsourced This classification helps users distinguish the rights and obligations of the enterprise in managing fixed assets, as well as a basis to examine the rights and obligations of the enterprise for fixed assets is presented on balance sheet accounting Fixed assets that are under the ownership of enterprise and classified by material form and nature of investment assets are classifications are the current classification that commonly used in the accounting and management of fixed assets According to this classification, fixed assets are allocated into types : tangible, intangible and leasing fixed assets This is also the classifications used to present items of fixed assets on the balance sheet Tangible fixed assets According to the Vietnam Accounting Standards No 03- "Tangible fixed assets”: To able to record as tangible fixed assets , assets have to satisfy all - four criteria: Certain to gain profits from the usage of assets in future The cost of assets must be resolute reliably Using period must be estimated in a year Follow value standards under current regulations Intangible fixed assets According to Vietnam Accounting Standard No 04: Assets regarded as intangible fixed assets must satisfy the definition of intangible assets (intangible assets are assets that have no physical forms but verify the value and are owned, used, produced, provided services or leased by the company Trần Ngọc Mai - Supervisor: PhD Doan Thanh Nga that suit with recording intangible assets criteria) There are four criteria for intangible fixed assets: Certain to gain profits from the usage of such asset in future The cost of assets must be resolute reliably Using period must be estimated in a year Follow value standards under current regulations Leasing fixed assets They are the fixed assets that the company has rented for a long time and is empowered by the lessor to manage and use most of the time of the fixed assets The rental income is sufficient for the lessor to cover the cost of the property plus the return on that investment Each type of fixed asset is detailed in groups according tomsystem, characteristics, and nature and there are regulations on different brackets and depreciation rates Company register for each level of depreciation of fixed assets and apply specific uniformly throughout the accounting year The first thing to when auditing a fixed asset is that the auditor must check whether the conditions for recognizing the fixed assets shown in the balance 1.1.2 • • • • • • • • • sheet are appropriate Accounting for fixed asset Accounting document and accounting bookmsystem for fixed assets Documents used in the accounting of fixed assets include: Contract for purchase of fixed assets Sales invoices, delivery bills of the seller Minutes of handing over fixed assets Minutes of liquidation of fixed assets Minutes of pre-acceptance test of completed repairing volume Minutes of fixed assets re-evaluation Minutes of inventory of fixed assets Minutes of liquidation, settlement of asset Worksheet and depreciation of fixed assets Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga Construction, procurement, or Council sale fixed consignment assets and liquidation fixedAccounting assets fixed assets Decision to increase or decrease Document fixedfor assets increasing or decreasing assets Set upfixed (cancel) the recording of fixe Diagram 1.1: Process of accounting fixed asset Accounting book for fixed assets In order to keep track of all fixed asset information, enterprises usually use themsystem of accounting book such as: Fixed asset tag Detailing book of fixed asset following to each used part and type of fixed asset to be tracked General ledger for accounts 211, 212, 213, 214 Accountingmsystem for accounts Fixed assets are classified into different groups using different accounts and sub-accounts Account 211 Tangible fixed assets 2111 Building & architectonic model 2112 Equipment & machine 2113 Transportation & transmit instrument 2114 Instruments & tools for management 2115 Long term trees, working & killed animals 2118 Other fixed assets Account 212 Fixed assets of finance leasing Account 213 Intangible fixed assets 2131 Land using right 2132 Establishment & productive right 2133 Patents & creations 2134 Trademark 2135 Software 2136 License & concession license 2138 Other intangible fixed assets Account 214 Depreciation of fixed assets Trần Ngọc Mai 1.1.3 - Supervisor: PhD Doan Thanh Nga 2141Tangible fixed assets depreciation 2142 Financial leasing fixed assets depreciation 2143 Intangible fixed assets depreciation 2147 Investment real estate depreciation Accounting for fixed assets and depreciation of fixed assets: Accountants based on the corresponding accountmsystem and the fluctuation of fixed assets Potential errors and frauds Potential errors Errors happened due to forget to record an accounting transaction For example, company purchases a fixed asset with a development fund or a investment fund, but accountant only record the increasing of the fixed assets like purchase by a depreciation fund or a business capital but not include transferring capital Enterprise bought a technologically advanced equipment that consist of a part of machinery, a part of transferring technology The accountant should have record the increase in tangible fixed assets for the machinery part and record the increase in intangible fixed assets of the value - of the technology, form….; Wrong accounting, for example in case it is supposed to record in Debit or Credit for this account but accountant record to another account that not suitable for the transaction During auditing fixed assets, the auditors must pay attention to the case of fixing fixed assets When the enterprise performs minor repairs of fixed assets, the repairing expenses should be accounted into the production and business expenses in the period, which are recorded as Debit accounts of general production costs, sale expenses, management expenses: but the accountants record it to Debit side of the fixed asset account - which increases value on the accounting balance sheet of fixed assets Errors happen in book entry and transfer This is a usual error of accountants that auditor should concern The wrong amount may be wrongly recorded in the voucher Accountant can also make a mistake in transferring the - accounting data from journal to the ledger; Errors due to duplication This error may due to multiple records of a Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga transaction For example, company uses the general accounting journal to account for producing entries in the accounting period When there is a fixed asset liquidation, the accountant record both on receivable journal and general - journal the total amount of money collected in the liquidation process Errors due to accountant’s poor skills that lead to wrong recording of arising transactions in accounting books or when there are new regimes but accountant have not yet fully grasped the contents or have not fully - understood the operations, thus leading to errors in the accounting process Potential frauds Making fake documents, changing vouchers, fixing documents, hiding information to embezzle or embezzle public funds In the field of auditing of fixed assets, fraud of this type is usually faking vouchers, overstate fixed assets’ price, repairing documents, making false documents related to the cost of purchasing to increase the fixed asset price for embezzlement of public funds Recording the cost of repairing fixed assets higher than the actual cost so that, when account it into expenses, it will increase the cost to appropriate - the difference from the actual cost Deliberately hide the documentation, omitting the results of the business to earn more benefit for enterprise or individual For example, the accountant deliberately omits revenue from liquidation, sale of fixed assets to reduce - corporate income tax payable to the State Recording of untrue transactions This case usually occurs For example, accountant deliberately recording untrue transactions related to purchasing fixed assets for embezzlement of public funds Companies can record transactions connected to intangible fixed assets – This is hard item to - evaluate and check Appling the wrong rule of the Government, such as, a company receiving fixed assets of another company that is also dependent on the same organization: Expenses which associated to the transferring of fixed assets would be accounted into period, but enterprise deliberately record increasing of the Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga fixed asset’s price Fixed asset was bought and has been waiting for installation, not yet put into use, but the enterprise recorded it in the increase of the fixed asset price - Key internal controls of fixed assets Management of the quantity and quality of fixed assets About quantity: management department guarantee adequate supply of power, - satisfy the requirements of business and production of enterprises About quality: the maintenance has to avoid damage or loss of detail parts 1.1.4 that reduce the certain value of fixed assets To properly implement this issue, each company needs to set up a fixed asset maintenance policy and use it appropriately, in line with its operating characteristics At the same time, for effective use of fixed assets, financial and mechanical norms should be formulated for each kind and group of fixed assets by company This helps company to plan and take measures to repair, upgrade and invest new fixed assets to serve timely production and business activities in enterprises Value management Determination of the original cost and residual value of the fixed assets that invested, purchased, transferred and depreciated The following here are the principles for determination the original cost of fixed assets: For tangible fixed assets: The original price is determined in each case - as follows: Original price of purchased tangible fixed assets (including new purchasing) is purchasing price (except for commercial discounts, discounts) + taxes (excluding refundable tax) + expenses directly related to put the asset into operational status such as area preparation, transportation costs or expenses for installation, commissioning (excluding (-) recoveries of products and - scraps from trial installation) + expert costs and other related expenses Original price of tangible fixed assets classified as basic investment in the form of contract delivery: Original price (both self-employed and outsourced) is the last cost of the investment project, other associated expenses and 10 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga • with the approval of competent authorities? Discuss with staff responsible for the need to change the depreciation period, • the depreciation charge resulting from the invisible wear and tear Collect or build up a general analysis of depreciation that includes the beginning balance, the amount depreciated during the year, the amount of • • depreciation, the year, and the ending balance Compare the beginning balances with previous years audited data Compare the increase in depreciation, as detailed in the total number of • entries on the general ledger Compare the end-of-period balance on the detail ledger with the closing • balance on the ledger Check the depreciation rate Compare the current year's depreciation rate with the previous year and • investigate the difference (if any) Recalculate the depreciation for some assets and compare it with the general - ledger Note to detect cases where the assets have been fully depreciated but the • depreciation is still calculated Compare the Credit Amount of Account 214 with the depreciation charge - shown on the expense account At the same time as checking the level of depreciation of fixed assets, it is necessary to check the appropriateness of the fixed asset depreciation - allocation to related parties In case of depreciation using other methods (depreciation by output, quick depreciation ), the depreciation calculation method and the consistency of - the depreciation policy should be checked through different periods Where the use of time or change their cost of fixed assets, enterprises need to determine the average rate of depreciation on the basis of value of fixed assets - and the remaining usage time remaining For financial-leasing fixed assets, the time used for depreciation of fixed - assets shall be the same as that of the lease contract Review the latest documents related to the adjustment of the depreciation 1.3.3 level Then review the application rate and depreciation level accordingly Completing the audit 28 Trần Ngọc Mai 1.3.3.1 Review for subsequent events - Audits are made after the balance Supervisor: PhD Doan Thanh Nga sheet date Therefore, during the time from the close of a fiscal year to the conclusion of the auditing report, there are events that affected the financial statements, the auditor in charge of - reviewing these events that occurred after the balance sheet date To able to gather and analysis events occurring after the date of planning of • the financial statements, auditors may use the following procedures: Interviewing with the management Reviewing of internal reports Reviewing the books created after the financial statement was made Checking the release notes after the date of preparing the financial report Reviewing the results of unplanned debts that are considered material Reviewing unused fixed assets and sell them after the closing date at the • lower of cost of book value Customers have a large debt balance but early next year was found to be - unable to pay related to fixed assets Auditors normally examine all the transactions happening at the connection of • • • • • settlement periods Taking into attention the measures taken by the manager to ensure that events happening after the balance sheet date have been determined 1.3.3.2 Evaluate results and issue audit report - At the end of the audit, the most important thing is to consolidate all the results into a common conclusion Finally, the auditor must conclude whether the audit evidence is sufficient to ensure that the financial statements are obtainable in agreement with acceptedDaccountingDprinciples This is also evident in VietnamDStandardDforDAuditing No 500: "Auditors gather evidence through internal controls; the auditor must determine whether the evidence gathered is adequate and appropriate to make his assessment of control risk The auditors gather evidence through detailed examination, observation, investigation, validation, calculation and analytical procedures If the auditor is in a state of inability to obtain sufficient and appropriate evidence, the auditor will give opinions on each part with dependent elements or opinions except for comments that cannot be commented or rejected” 29 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga - Therefore, when evaluateDauditDevidences, the auditor shouldGpay • attentionHto the nextKaspects: The adequacy of evidence: This aspect reflects the number of audit evidence The auditor revises the decision whether the audit program is adequate, taking • into account the areas of the problem identified during the audit process Comprehensive assessment of errors detected: The auditor will conclude that the financial statements show the enterprise's fixed assets at the time of recording in the Balance Sheet truthfully It is not based on a comprehensive - assessment of detected errors First of all, the auditor needs to assess the non-material errors After that, the auditor needs to make corrected entries and incorporate the expected errors in the fixed assets and compare to the stage of errors that can be unnoticed to see if the item can be accepted The auditor then sums up the errors to see if it exceeds the material level of the financial statement, and the auditor must make sure that the attached clarifications are made for each kind of asset: • • • • • - Applied depreciation method Usage period and depreciation rate applied AllHdepreciation in the year The total number of fixed assetskand correspondingmcollected depreciation Storage rights and limitations on fixedmassets, ifmany Based on the conclusions of all auditing activities, the auditors shall make an audit report, which shall give their opinions on the truthfulness and rationality 1.3.4 - of financial statement of the audited entity Announcement of audit report After completing the above tasks, the auditors shall prepare a consolidated report on the operating part, and the fixed assets part shall not be immediately commented upon but must be shared with the results of other operations In cases of the fixed assets auditor has limitations on the scope of the audit but cannot gather enough audit evidences to confirm the rationality of the fixed - assets, the auditor may express an opinion except Upon completion of the auditor work, the auditor and auditor will prepare and issue the audit report in accordance with the auditing standards In addition, 30 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga the auditor may prepare and issue a management letter advising clients on the shortcomings of the audited entity 31 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga CHAPTER II: PRACTICE OF AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY VIETNAMESE AUDIT FIRMS There are more than 155 independent audit firms licensed in Vietnam, including notably large international firms (also known as the Big Four which are: EY, Deloitte, KPMG and PwC), these companies dominate in terms of revenue and customer base Both Big Four and non-Big Four firms have made great contributions to the growth of the independent auditing system as well as to the accuracy and the healthiness of financial and monetary relations Impact of fixed asset’s characteristics Tangible fixed assets have a specific material shape, which makes it easier to control and evaluate the value As for intangible fixed assets, there is no specific physical form that is difficult to manage, and it is difficult to determine the real value Therefore, when auditing fixed assets, the auditor will face many difficulties in valuing and determining the ownership of the assets At present, our country has applied copyright law in many fields so this problem has been solved a difficult part Intangible fixed assets often have a long history of development (Researching & Developing cost) or have significant fluctuations over time (land use rights) or have a rapid depreciation period ( when tangible fixed assets becomes obsolete , tangible fixed assets will be depreciated) Therefore, it is difficult to apply the same procedure as for tangible fixed assets It is necessary to have a separate procedure for auditing intangible fixed assets in the era of fixed assets which has gradually become the main source of fixed assets to bring benefits to enterprises Investment costs in intangible fixed assets are amortized over several years and are recognized as depreciation of intangible fixed assets 32 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga Audit planning: 2.1 At this step, Big Four’s auditors have to fulfill with accounting and auditing principles and circulars as below: - Complying withlVietnamesekAccountinglStandards (VAS) and - GeneralpAcceptedkAccountingoPrinciples iniVietnam (GAAP) Complying with Vietnamese Standards Auditing (VSA), International Auditing Standards (ISA), and General Accepted Auditing Standards - (GAAS) The audited financial statements must be succumbed to the capable establishments in months after the end of fiscal year Meanwhile, Non-Big Four’s auditors only have to focus on Vietnamese Accounting Standards (VAS) VietnamesehAccounting System and General AcceptedvAccountingjPrinciples in Vietnam (GAAP) First of all, the audit firms have to approach to customers This process is conductedhwithoeach customer, ifothepnew customer (the first year) starts withpthekcustomer directly contacted the firm to request performing audit or through relationship with theiBoardtifudirectors or was introduced by theobank If the customer is a regular9customer or has been audited by the firm0for many years, audit firm may contact the customer directly, or the customer may contact the firm upon request for the Audit by auditing invitation We can see that in this field, Big Four firms are dominating both revenue and customer base Both Big Four and Non-Big Four firm have similar audit plan and process for understanding the entity’s business, its environment and understanding internal control and assess control risks These1stagesKof3theLaudit7will7help9the0auditor5have7deep understanding of8the0customer 9Include: Understanding about the field of activity, type of6business9capitalKcontributionLorLbusinessHobjectives and strategies, accounting policies, businessKenvironment, financialPreporting, 33 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga internal control and assess control risks As I can see, the analytical procedures at Big Four firms are more specific, more professional, explicitly planned according to a specific international standard compare to the Non-Big Four firms 2.1 Audit implementation Even though audit implementation depend on auditor’s assessment, but in general , process of performing tests of control , analytical procedures and tests of detail in Big Four companies have more professional process and the plan according to international standards The common procedure in Viet Nam audit firms is comparing the difference4between5 thisfyear and last year In the field of4fixed5asset planning , theqanalytical qprocedures qshow qtheqfluctuation of the account andKexplain theOreasonsOfor theOfluctuations, so that auditorsOcanObuild initialKjudgments on where tokfocus Nowadays, many companies use softwareOthatDmakes theKselection of samples from hundreds or thousands of units faster, more accurate, and overlaid SomeOsoftware are enables storing and updating theDworking papersGof allGsteps, all theQproceduresHin the audit, easier inspection and 2.2 alsoMreduces the amount oflpaperMused Completing the audit Even though the result of auditing also base on the auditor , the risk of misstatements in Big Four companies are lower because all inspections , documents are performedMstrictlyMthroughMallMlevelsMofMsupervisors from theMSenior, theMDirector, theMDirector toMtheMPartner toMensure the highestMquality ofMtheMaudit Beside that, Big Four companies accepted a small audit risk due to company’s reputation Therefore the cost of hiring Big Four auditors is always higher than NonBig Four auditors CHAPTER III: ASSESSMENT AND RECOMMENDATIONS TO IMPROVE AUDIT OF FIXED ASSETS IN FINANCIAL AUDITS CONDUCTED BY VIETNAMESE AUDIT FIRMS 34 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga 3.1 Assessments 3.1.1 Strengths About audit planning Auditors in auditing firms in Viet Nam can understand fully and investigate further about customer’s characteristic This stage provideMauditorsMwith anMoverviewMof theMcustomer, suchMasMtheir businessMactivityMsinceDincorporation,Dauthorization, changeKof business license,MlegalMstatus, macroeconomicMfactors InMgeneral, allMfactors canMhave anMimpact onMthe truthMandMfairness of theMinformation presented on financial statements is consideredMcarefully This process is very important so most of auditors focus on this stage About audit risks assessment: The riskMassessmentMmethod currentlyMused by most auditing firms in Vietnam isMstandardMbecause misleadingMinformation comprehensiveMprocess it levaluatesMtheMpotential TheMinherentMriskMisnassessed ofMcustomerMunderstanding by ControlMrisk for a is assessedMin termsMofMeffectiveness orMineffectivenessMbased on the design andMcontinuousMdetection andMoperation of customerMinternal controls FromMtheseMrisks, the auditorMdeterminesMwhether the audit risk isMhigh, mediumMorMlow The riskMassessmentMprocess isMcarried outMfrom theMbeginning and will beMcontinuouslyMrevised in theMaudit processMbased on up-to-dateMinformation toMensure theMeffectiveness and efficiencyMof the audit as forMfinding newMproblems About designing audit program For this stage, all the auditors in Viet Nam firms know to prepare the general auditMplan for auditingMas well as auditMprograms for eachMbasic processMto guideMthe audit in the laterMstages TheMgeneralMauditMplan is presentedMandMbased on currentMagreed documents ThisMincludes allMof the followingMsteps: determiningMthe scope of theMaudit, understandingMclients, makingMstrategic decisionsMfor auditMwork, determiningMmaterialMlevels, assessingMtheMinherentMrisks 35 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga andMestablish anMapproach forMeachMspecificMprocedure In general, all audit firms in Viet Nam have a good process to establish an audit plan About auditMimplementation Nowadaysm, all auditing firms haveMdesignedMandMmaintained standardMcontrolMproceduresMforMfixedMassetsMsuchMasMapproval procedures that define responsibilitiesMandMauthority for eachMlevel and location; To set up fixed assets registration system and regular comparison betweenMfixedMasset register and generalMledger, branchMbook; carry out inventoryMat theMend ofMfiscalMyear As for fixedMassetsMas well asMother basic procedures, theMaudit programMhasMdesigned the detailedMcontrolMmethod As such, the auditor must proceed in two steps: design evaluation and implementation; evaluating the effectiveness of the control procedure Completing the audit stage DuringMthisMstage, allMinspectionsMareMperformedMstrictly mostly throughMsupervisorsMof theMDirectors toMensure theMhighestMquality of theMaudit The resultsMin thisMstageMmustMbe highlyMstandardized, ensuringMthat allMdecisions andMopinions ofMcompany 3.1.2 Weaknesses For large scale enterprises, investing in new fixed assets annually is normal, so comparing fixed asset fluctuations over the years may show abnormalities But for small and medium enterprises, the investment and purchase of fixed assets has not happened regularly, there have been no changes in fixed asset prices between fiscal years so there is no grounds for comment On the other hand, fixed assets have a slow turnaround time, so it is difficult to assess the size of the fixed assets increase with the results of production and business in the period Especially, the intangible fixed assets have a long time of formation, it is difficult to monitor and check the process of gathering costs In detailing: 36 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga About audit planning The analysis procedure consists of two main methods: horizontal analysisM(trendManalysis) andMverticalManalysis (proportionalManalysis) Howeverm, auditors in Viet Nam mainly use horizontal analysis EvenMwithMthe useMof horizontalManalysis, auditorsMonlyManalyze movementsMof fixedMassets by comparingMthis year andMlast year's figuresm then explain them About audit implementation SampleMworkMisMbased onMtheMpersonalMevaluation of the auditor without usingManyMsoftware ThisMreducesMtheMobjectivity of the selectedMsamples asMwell asMmakes theMselection of theMsamples more rigid Therefore, testMcontrol mayMnot beMeffective in helpingMto reduce contentMinspection, to saveMtime and costs for auditing About analyticalMprocedure The analyticalMproceduresMinclude: ComparisonMof data from this year to last year, comparingM the accumulated depreciationMof the customer to the amount that the auditor collects So analysisMprocedures only display quantifiableMmovementsMbut not reflect theMefficiency and use ofMfixed assets in the company About completing the audit The final analysis procedure is very important The purposeMof this procedureMis toMcheckMwhether theMinformation is beingMchecked is true or not, if there is any abnormalities Its weaknesses are basically because auditors only compare this year with last year At this stage, the auditor often has directly taken the content test and move to a new customer Therefore, thisMmayMleads to theMoverlap betweenMthe previousMand the currentMjob, so the quality control can be 3.2 - done without careful that might reduce the effectivenessMof thisMprocedure Recommendations for improving the audit of fixed assets For intangible fixed assets with significant fluctuations such as land use rights, company should follow the general regulations of the State, not follow the market prices to avoid asynchronism as well as deliberate 37 Trần Ngọc Mai - Supervisor: PhD Doan Thanh Nga misrepresentation compare to reality For intangible fixed assets with fast depreciation such as patent, software, the appropriate depreciation rate should be applied When conducting audits, auditors also need to have certain knowledge about these types of intangible - fixed assets For fixed assets which must go through the study period, the auditor may apply the experimental method at a certain stage to examine the process of compiling the expenses of the enterprise but must consider in the relationship - between cost and performance audit For fixed assets that are approximate relative to the brand, the auditor can - compare it in relation to the average annual turnover For small and medium-sized enterprises, the appropriateness of fixed assets increases can be seen with the results of business activities in the past few years, or in the development strategy of the corporation, or in the general - condition of the economy Auditors shouldMuse experts’Mopinion FixedMassets aremspecial accountsMwith largeMamountsMof moneyMand longMshelf life The results of aMfixedMasset auditMnot onlyMaffect theMcurrentMfiscalMyear, but alsoMaffect theMfollowing yearMand throughoutMthe life of theMfixed asset With aMlarge numberMof clients withMmanyMtypes ofMbusinesses, fixed assetsMare used with theMclients areMunique To ensureMthe accuracy of the audit, the auditorMneeds to understandMthe nature of theMclient's fixed assets EspeciallyMbecauseMtoday's technologyMand scienceMare rapidly growing, increasinglyMmodern andMregularlyMupdating, auditors will haveMdifficultyMunderstandingMthe nature of allMfixed assets/ ( tangible and intangible) of differentMcustomers, withMdifferentMbusiness sectors soMthe use of expertMopinion is needed 3.3 Conditions for applying the recommendations Auditors need to be flexible and creative in selecting appropriate auditing procedures for each item in each specific enterprise that has high efficiency in the work 38 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga In order to assist auditor in preparing detailed test plans for items on the Financial Statements, audit firm develops a sample audit program that includes the most commonly used basic screening procedures Check details for potential errors of each account This helps the auditors well in every audit Based on this sample audit program, auditor will amend the appropriate auditing procedures and may design additional audit procedures if the auditor finds that the sample audit procedures have not been exhausted This shows that the auditors must be creative in their work when conducting audits To that, the auditor first needs to have an understanding of the business characteristics of the customer, particularly about the item he or she is checking The auditors need to understand and apply the accounting and auditing standards in the audit process This is required for the auditors A thorough understanding of the accounting and auditing standards will ensure that auditing is carried out in accordance with the standards Understanding the accounting standards helps the auditor to detect errors in the financial statements of customers, thus giving accurate opinion on the audited financial statements The auditor need carefully examine during the audit process to provide a reliable audit report Through the study of the process of auditing the fixed asset item in the Financial Accounting Audit, the examination and revision is carried out in both the implementation phase and the reporting period During the implementation phase, the auditor team leader will ensure the management and control of the performance and quality of work of the staff and compare it with the audit program Prior to the release of the official report, all audit records must undergo rigorous and rigorous scrutiny by the auditing manager and the board of director 39 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga 40 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga CONCLUSION Fixed assets are the item that have little transaction and are not regular but it’s large and affect many items and financial indicators on the financial statements It affects the financial ratios reflecting the production capacity of the business Increases or decreases in fixed assets result in changes in depreciation expenses and changes in operating expenses during the period leading to changes in the company's profit and payable taxes Therefore, when auditing the financial statements of enterprises, the item of fixed assets is one of the important items that need to be audited Auditing fixed assets not only detect mistakes in the operations related to fixed assets but also contribute to improve the efficiency of management of fixed assets of enterprises In order to improve the quality of auditing fixed assets in auditing financial statements, auditors need to have a deep understanding of the characteristics of the business operations of the enterprise so that the relationship between production and business can be seen Some issues that need to focus on auditing fixed assets are the calculation and depreciation of fixed assets With the brief knowledge provided in this article, I hope to have some insight into the core features and work of the Fixed Asset Accounting process in financial statements auditing 41 Trần Ngọc Mai Supervisor: PhD Doan Thanh Nga REFERENCES Book No Name Author Auditing Circular 200/2014/TTBTC on guidelines for accounting policies for enterprises Vietnam auditing standard Vietnam accounting standard Auditing and Assurance Services Alvin A.Arens James K.loebbecke Ministry of finance Ministry of finance Ministry of finance Alvin A.Arens Publishing year 2000 Publishing by 2014 Ministry of finance 2015 Internet sources: Name of website www.accountingtools.com www.investopedia.com cafef.vn Day of accessing 29/11/2017 1/12/2017 1/12/2017 42 Prentice Hall; 8th ed Edition Ministry of finance Ministry of finance Person Education , 16th Edition ... of the seller Minutes of handing over fixed assets Minutes of liquidation of fixed assets Minutes of pre-acceptance test of completed repairing volume Minutes of fixed assets re-evaluation Minutes... objectives in auditing fixed assets According to standard No 200 of Vietnam audit standards "The goal of auditing the financial statements is to enable auditors and auditing firm to express an opinion... Practice of audit of fixed assets in financial audits conducted by Vietnamese audit firms Chapter III: Assessment and recommendations to improve audit of fixed assets in financial audits conducted