THEORETICAL FRAMEWORK ON AUDITING FIXED
Overview of fixed assets
1.1.1 Overview of fixed assets in financial statements
Fixed assets and main definitions relating to fixed assets
To effectively conduct business operations, a company must secure three essential elements for its production process: laboring objects, laboring materials, and laboring activities Among these, fixed assets play a crucial role as a vital laboring material, reflecting the business's current production capacity and its ongoing technological advancements in daily activities.
Fixed assets are high-value resources in a business that play a crucial role over multiple production periods Their value is gradually converted into cash as they contribute to the production of goods and services throughout these periods.
Depending on using purpose, cash business has different ways to classify fixed assets, however, two main classifying criterion are existence form and ownership.
According to existence form, fixed assets include:
Tangible fixed assets are physical assets owned by a business for operational purposes, as defined by the recognition criteria established in Article 3 of Circular 45/2013/TT-BTC.
Tangible fixed asset may be classified into smaller groups, based on technical features, includes: Office equipment, Plant and building, Vehicle equipment, Machinery, Biological assets and other tangible fixed assets.
Assets recorded as tangible fixed asset have to meet all four (4) following conditions:
- Future economic benefits will surely be obtained;
- Historical cost has been determined reliably;
- Useful life is at least 1 year;
- Meets all value criteria as prescribed in regulations in force [VAS 03] Besides four conditions above, only assets with cost from 30,000,000 VND
(30 million VND) are recorded as tangible fixed asset [Article 3, circular 45/2013/ TT-BTC]
Intangible fixed assets refer to non-physical assets that hold measurable value and are utilized by businesses in their operations, services, or leased to other entities, in accordance with the recognition criteria established for intangible fixed assets as defined in VAS 04.
Intangible fixed asset includes: Copyright, Patent, Land use right, Software program, License, Trademark and other intangible fixed assets.
Assets recorded as intangible fixed assets have to meet all following conditions:
- Identifiable: An intangible fixed asset is considered identifiable when the enterprises may lease, sell or exchange it or acquire concrete future economic benefits therefrom.
Controllability refers to an enterprise's authority over an asset, which is established when it possesses the rights to obtain future economic benefits from that asset while also having the ability to restrict others from accessing those benefits.
Intangible fixed assets can provide significant future economic benefits for enterprises, such as increased turnover, reduced costs, and various advantages derived from their utilization.
According to ownership, fixed assets include:
Internally fixed assets refer to fixed assets that are created, purchased, or constructed using funding from various sources, including government agencies, state budgets, loans, joint ventures, and other business funds.
Leased fixed assets are categorized into two types: financial leases and operating leases, with these classifications determined by the terms of the leasing contract Regardless of the type, all leased assets are intended for use over a specified period.
A financial lease involves fixed assets that are not owned by the enterprise; however, the enterprise holds legal responsibility for managing and utilizing these assets as if they were their own This is outlined in Article 36 of Circular 200/2014/TT-BTC.
Some cases that normally lead to financial leases:
- The lessor transfers the asset's ownership to the lessee at the end of the lease term;
At the beginning of the lease, the lessee is granted the option to buy the leased asset at a price anticipated to be lower than its fair market value at the conclusion of the lease term.
- The lease term accounts for most of the economic life of the asset even if the ownership is not transferred;
- At the inception of the lessee, the present value of the minimum lease payment accounts for most of the reasonable value of the leased asset;
- The leased asset is of a special-use type which can be used only by the leased without major modification or overhaul [VAS 06]
An operating lease is distinct from a financial lease, as it allows the lessee to manage and utilize the leased asset only during the contract term At the end of this period, the lessee is required to return the asset to the lessor.
Fixed assets present in Financial Statements as follow:
In financial statements, fixed asset information is reflected in line items such as historical cost, accumulated depreciation, production cost (depreciation expenses), and other income or expenses related to disposals This data not only appears on the Balance Sheet but also influences revenue, expenses, and profit for the reporting period.
In Balance Sheet, fixed asset is the item that presents total net book value ofTangible fixed asset, Intangible fixed asset and Lease fixed asset.
Fixed assets are calculated by summing the historical cost of tangible fixed assets and their accumulated depreciation, along with the historical cost and accumulated depreciation of intangible fixed assets Additionally, the historical cost and accumulated depreciation of financial lease fixed assets are included in this calculation This comprehensive approach ensures accurate accounting for fixed assets, represented by codes 220, 222, 223, 225, 226, 228, and 229.
1.1.2 Main accounting requirements for fixed assets
In accounting entry, Tangible fixed asset account is classified into sub- account Tangible fixed asset (Account 211) includes following sub-accounts:
- Account 2113: Means of transportation and transmitters
- Account 2114: Office equipment and furniture
- Account 2115: Perennial plants, working and producing animals
Identify historical cost of Tangible fixed assets according to VAS 03
The historical cost of a procured tangible fixed asset includes the purchase price after deducting trade discounts and price reductions, applicable taxes (excluding any reimbursed amounts), and all expenses directly associated with preparing the asset for use.
The historical cost of tangible fixed assets resulting from construction investments through contractual methods includes the finalized costs of the construction projects, any directly related expenses, and applicable registration fees.
- The historical cost of a self-constructed or self-made Tangible fixed asset is its actual cost plus (+) the installation and trial operation cost.
- The historical cost of a Financial-leasing Tangible fixed asset shall be determined according to the regulations of the accounting standard "Asset lease’.
Financial statement audit process for fixed assets
1.2.1 Audit objective, audit evidence and common risk of Fixed Assets audit
Fixed assets represent a substantial portion of a manufacturing company's total assets Through the auditing of fixed assets, auditors can assess the company's capacity for future business operations and identify potential internal control fraud This analysis allows for a relatively accurate prediction of the entity's operational capabilities moving forward.
To effectively align with the overarching goals of auditing financial statements, which focus on assessing the reliability of all financial items, the specific objectives for auditing fixed assets include gathering evidence and providing opinions on relevant financial data Auditors implement direct procedures to ensure the reliability of information concerning fixed assets, thereby fulfilling these specific audit objectives.
Hand over Book-keeping, accounting
Voucher of increase or decrease of Fixed Asset
Fixed Assets tag, related journal entries
About accounting transactions of fixed assets, auditors have to assure:
- Occurrence: All accounting transactions of fixed assets which was recorded in the accounting document s must actually occur
- Accuracy: All accounting transactions of fixed assets are fully reflected in accounting documents
- Cut – off: All accounting transactions of fixed assets are recorded according to accrual basis accounting.
About accounting balance of fixed assets, auditors have to assure:
- Existence: All fixed assets which are disclosed on financial statements must exist actually Data on the reports have to match with data on physical inspection minute of entity.
- Completeness: All accounting balances of fixed assets are fully reflected in accounting documents
All disclosed fixed assets must be owned by the entity, ensuring compliance with rights and obligations For financial leased fixed assets, it is essential that these assets remain under the entity's control for the long term, supported by fully executed contracts.
- Evaluation: The balance of fixed assets accounts is assured to obey to accounting standards and specific rules of the company.
The financial statements ensure that all fixed asset balances are accurately calculated and fully disclosed, providing clarity and comprehensibility for stakeholders.
Risk of material misstatement in fixed assets audit
In the accounting of fixed assets, the risks of material misstatement, including fraud and error, can result in the underreporting or overreporting of fixed assets, total expenses, total revenue, profit, and tax liabilities Fixed asset fraud encompasses two main types: fraudulent financial reporting, which involves the dissemination of inaccurate information in financial statements, and misappropriation of assets, often perpetrated by unethical employees engaging in theft.
The accounting practices of a company often depend on its objectives and the accountant's strategies To enhance profits and attract investors, a company might understate depreciation, maintenance expenses, or the costs associated with acquiring new assets Conversely, to minimize tax liabilities, it may overstate maintenance fees, depreciation expenses, or conceal revenue from asset disposals Such accounting errors can significantly impact both tax accounts and profit figures.
Frauds in fixed assets accounting segment are demonstrated below:
- Record fake invoices, correcting the number on vouchers, overstating the purchasing cost of fixed assets to embezzle the cash
- Overstate the maintaining expense to overstate cost
- Apply inappropriate accounting policy (cut-off policy, depreciation policy) to manage cash flow
- Continuously depreciate all the fully-depreciated assets to increase the expense of the entity with the purpose of understate the profit after tax
- Hide the transactions to meet the benefit of entity
- Hide the disposal revenue and record fake transactions to embezzle the cash, decrease tax payables
- Apply inappropriate accounting policy (cut-off policy, depreciation policy) to manage cash flow
- Hide documents and profiles of assets to earn benefit for personal purposes
In general, fraud in in fixed assets accounting segment in both situations also related to fraudulent financial reporting and misappropriation of assets on purpose.
On the other hand, errors in fixed assets accounting segment are out of purpose misstatement These situations derive from accidentally wrong viewpoints of accountants.
Errors in fixed assets accounting segment are demonstrated below:
- Forget to journalize entries that related to expense such as: depreciation expense, warranty fee, repairing, transportation fee
- Journalize wrongly to contra account
- Transfer numbers from Invoices to general ledgers wrongly with a higher (lower) amount of revenues (expenses)
- Journalize the entries related to revenue double times
- Forget to journalize entries that related to revenue such as: revenue from disposal
- Journalize wrongly to contra account
- Transfer numbers from Invoices to general ledgers wrongly with a higher (lower) amount of expenses (revenues)
- Journalize the entries related to expense double times
In addition, both overstatement and understatement can happen due to low qualification and poor experience of the accountants in the company.
In conclusion, risk assessment involves multiple levels, with auditors evaluating three primary criteria: management, business, and financial transactions The significance of each criterion determines whether auditors assess it as material or not, based on its inherent nature.
To effectively identify fraud and errors related to fixed assets, auditors should examine the company's regulations on purchasing, managing, and disposing of assets, along with relevant ledgers, reports, and invoices Key documents for testing may include purchase orders, sales invoices, payment orders, stock count minutes, disposal minutes, handover minutes, sales contracts, bills of lading, goods receipt notes, goods issue notes, asset test records, price quotations, and other supporting documents.
Source of audit evidence for Fixed asset audit
Source of documentations using to be audit evidence for fixed asset as below:
-Fixed assets register reflect opening balance, increasing amount, decreasing amount, closing balance of historical cost, accumulated depreciation and fixed asset carrying amount.
-Detailed listing of purchasing, disposing fixed assets in the period.
-Depreciation calculation in the period Detailed listing of completed construction, construction in progress during the period.
-Accounting policies relating to fixed assets overhaul.
-General ledger, detailed accounting books relating to fixed assets and depreciation.
-Other relating documentations and contracts.
Besides that, based on the features of each companies, auditor can ask client to provide other supporting documentations for figures that will be audited.
1.2.2 Financial statement audit process for fixed assets
Planning is the crucial first stage of an audit, significantly influencing the subsequent phases The audit planning process for fixed assets involves several key steps.
-Consider the ability of continuing engagement
-Assess the risks and materiality of fixed assets
Auditors gather fixed asset data based on the client's status; for regular clients, they update existing audit files with new information, while for first-year audit clients, they collect comprehensive data from the establishment year up to the current financial statement period.
Considering the ability of continuing engagement
The audit planning stage is tailored to each client's unique circumstances For first-time audits, clients may reach out directly to the audit firm or follow the established relationship with the Board of Management For clients undergoing annual audits, communication is typically initiated through the engagement letter Additionally, the audit plan encompasses the assessment of fixed assets as part of the overall audit strategy.
VSA 220 Quality Control for Audits of Financial Statements emphasizes the importance of engagement acceptance under the auditor's control The engagement partner must ensure that proper procedures for accepting and continuing client relationships and audit engagements are adhered to, and that the conclusions drawn are sound To maintain quality control in audits and reviews, firms must gather necessary information before taking on new clients and when assessing ongoing engagements This information aids the engagement partner in making informed decisions regarding the appropriateness of accepting or continuing audit engagements.
- The integrity of the principal owners, key management and those charged with governance of the entity,
- Whether the engagement team is competent to perform the audit engagement and has the necessary capabilities, including time and resources,
- Whether the firm and the engagement team can comply with relevant ethical requirements,
- Significant matters that have arisen during the current or previous audit engagement and their implications for continuing the relationship.
In this step, the Engagement leader has to identify the reason for auditing fixed assets segment in detail and all financial statement in general.
An audit contract will be established between the Board of Management and the audit firm's representatives The selection of the Senior Manager and Senior Associate will be based on the audit contract and previous audit files to effectively form the audit team and schedule Additionally, an associate will be designated specifically for auditing the fixed assets segment.
Auditors conduct thorough investigations into a company's business activities, management of human resources, accounting systems, and policies related to fixed assets They gather essential documents such as ledgers, detailed listings of fixed assets, physical count minutes, disposal records, handover minutes, and payment vouchers Additionally, auditors must stay informed about the client's business situation and income summaries to determine their potential impact on asset balances The business environment and strategic direction of the entity are crucial indicators in evaluating the capacity to acquire or dispose of fixed assets.
Analytical procedures, as defined by VSA 520, involve the examination of data and key metrics to identify trends, fluctuations, and discrepancies that may conflict with other relevant information or deviate significantly from expected values Auditors are required to implement these procedures during the auditing process to assess the business condition of entities and identify areas susceptible to risk.
The analytical procedures cover the comparison of financial information, such as:
- Comparing corresponding information in the period with those of the previous periods,
- Comparing reality with the units' plan,
- Comparing reality with the auditors' estimates,
CONCLUSION
Chapter 1 has organized systematically theoretical framework about Fixed assets segment and auditing Fixed assets in Financial statements audit Result of chapter 1 will be the premise for analyzing Fixed assets audit progress conducted byAASC Auditing Firm Limited Company in Chapter 2 and solutions for improving Fixed assets audit progress conducted by AASC Auditing Firm Limited Company presented in Chapter 3.
FIXED ASSET AUDIT IN FINANCIAL STATEMENT AUDIT
Overview about AASC Auditing Firm Limited Company
- Name of company: AASC Auditing Firm Limited Company
- Head office: No.1, Le Phung Hieu street, Hoan Kiem district, Ha Noi, Viet Nam.
Email: aaschn@hn.vnn.vn
Website: www.aasc.com.vn
3rd Floor, Galaxy 9 building, No 9 Nguyen Khoai, Ward 1, District 4.
Email: aaschcm@aasc.com.vn
8 Chu Van An, Ha Long city
Email: aascqn@aasc.com.vn
- Form of business organization: Limited Liability Company
AASC Auditing Firm Company Limited, formerly known as Auditing and Accounting Financial Consultancy Services Limited Company, is a prominent member of HLB International, a global network of professional auditing firms and business management advisers As one of the first and largest legal entities in Vietnam specializing in auditing, accounting, financial and tax consultancy, and business evaluation, AASC is headquartered in Hanoi with two additional branches.
AASC Auditing Firm is recognized as the leading provider of professional services among auditing firms in Vietnam, serving a diverse range of clients The firm's commitment to delivering top-quality construction audit services has been affirmed by Dr Vuong Dinh Hue, the Head of the Central Department of Economics, former Vietnam Audit General of the State Audit Office, and former Minister of Finance This reputation is further supported by the Vietnamese auditing firms ranking published by the Ministry of Finance and VACPA.
In 2007, AASC successfully transitioned from a state-owned enterprise to a limited company, in line with its commitments to the World Trade Organization (WTO) Today, it ranks among the top five auditing firms in Vietnam, boasting the highest annual revenue, a robust client base, and a large workforce AASC currently employs 88 Vietnamese Certified Public Accountants, along with 8 ACCA members, 3 CPA Australia members, and 2 CIMA members.
With over 27 years of experience as a state-owned enterprise and limited company, AASC is committed to delivering first-class services that prioritize the legal interests of our diverse clientele Our team comprises 01 Korean expert, 28 Certified Practicing valuers, 40 Certified Tax Consultants, and more than 470 dedicated staff members We serve a wide range of clients across various economic sectors, including economic groups, state-owned corporations, foreign-invested companies, listed companies, joint stock companies, commercial banks, and projects funded by the World Bank (WB) and the Asian Development Bank (ADB), as well as other international credit organizations and construction projects.
The President and Prime Minister have recognized the exceptional contributions of AASC's employees and Board of Directors in auditing and accounting, which significantly support the Construction of Socialism and National Defense As a result, they awarded the company a complete set of First, Second, and Third-class Labor Medals Additionally, Chairman Ngo Duc Doan received a Second-class and a Third-class Labor Medal, while General Director Nguyen Thanh Tung was honored with a Third-class Labor Medal and the title of "National Emulation Soldier."
The Auditing Departments No 2, No 3, No 5, and the Construction Audit Department, along with Mr Do Manh Cuong, Deputy General Director, and Mr Hoang San, Head of the General Affairs Department, have been honored with the Labor Medal and two "Emulation Flags." Additionally, numerous Certificates of Merit from the Prime Minister have been awarded to various teams and individuals, highlighting their recognition in both domestic and international markets.
AASC is among the select auditing firms in Vietnam recognized by the World Bank (WB) and the Asian Development Bank (ADB), as well as various international credit organizations, to conduct audits on projects financed by these entities.
AASC ranks as the fifth largest service provider in Vietnam, following the Big Four firms, in the areas of auditing and professional services, as reported by the Vietnam Association of Certified Public Accountants.
AASC is a leading auditing firm in Vietnam, authorized by the State Securities Commission (SSC) to deliver auditing services specifically for securities companies and publicly listed firms on the stock exchange.
In July 2005, AASC joined the International Network of Professional Accountants (INPACT), a global association of esteemed independent auditing and accounting firms As a proud member of INPACT, AASC is dedicated to delivering top-notch professional services to its clients.
AASC received the prestigious "Top Trade Services" award from the Ministry of Industry and Commerce in 2007, 2009, and 2016, recognizing its commitment to delivering high-quality services and adhering to the standards set by the World Trade Organization (WTO).
In 2010, AASC was awarded the title "Typical Enterprise 2010" and Thang Long Cup by Hanoi People Committee.
AASC was awarded “Emulation Flag” in 2009 and 2012 by the Government and in 2010, 2015 and 2016 by Ministry of Finance.
On February 18, 2011, AASC became an official member of HLB International, a global network of independent auditing firms, enhancing AASC's integration and expertise in auditing, accounting, and professional consultancy services.
In 2011, AASC received a First Class Labor Medal from the President and
“The Emulation Flag” of the Government.
In 2011, AASC generated over 100 billion VND in revenue, solidifying its status as a leading auditing firm in Vietnam The company not only maintained the highest revenue and client count among its competitors but also ranked first in revenue from auditing project settlement reports.
AASC is the pioneering Vietnamese auditing firm that offers professional auditing and consulting services to various countries in the region, including Laos, Cambodia, Thailand, and Indonesia.
In 2013, Auditing and Accounting Financial Consultancy Service Company Limited (AASC) rebranded into AASC Auditing Firm Company Limited. Launching AASC new logo and AASC Consulting and Associates Company Limited (ACG).
In 2016, AASC Auditing Firm marked its 25th anniversary, celebrating the establishment of AASC and the Vietnamese Independent Audit sector The firm also successfully hosted the HLB International Conference in Vietnam, focusing on the theme of Cross-border Investment – Challenges and Prospects.
In 2017, AASC achieved over 200 billion VND in revenue Maintained the leading position in revenue among Vietnam’s auditing firms and ranked first in revenue from audit of project settlement report.
In 2018: Launched AASC Vietnam Valuation Company Ltd (AVV) and celebrated the 5th anniversary of publish of AASC Logo.
2.1.2 Organization structure of AASC Auditing Firm Limited Company
Characteristic, organization process Financial statement in AASC
An audit team at AASC typically comprises 3 to 5 members, including a senior auditor and several audit assistants, all of whom are tasked with overseeing the entire audit process from preparation to completion The senior auditor plays a crucial role during the preparation phase, conducting surveys and evaluations that significantly impact the quality of the audit and the reputation of both the auditor and AASC During the planning phase, the senior auditor develops a tailored audit program based on the client's business characteristics and the qualifications of the audit assistants, clearly outlining each member's responsibilities and the methodologies to be employed This structured approach ensures that the audit team effectively executes detailed inspection procedures during the implementation stage, leading to comprehensive audit results.
Assistant Auditor Assistant Auditor Assistant Auditor
Client leader will be responsible for guiding, review, process results and summarize the audit conclusions
2.2.2.1 The content of audit a)The audit approach
To conduct an effective audit and achieve optimal results, it is essential for the AASC to adopt an appropriate audit approach that aligns with the client's business situation and objectives This involves understanding various factors that influence the client's operations Depending on the specific audit, a combination of compliance methods and detailed inspections of accounting operations and account balances may be utilized The auditor must gather sufficient evidence to support their findings and provide a comprehensive analysis of the financial statements Ultimately, this enables the auditor to assess the client's financial position and business performance, maximizing the audit's effectiveness.
AASC is dedicated to delivering comprehensive financial reporting and accounting advisory services that adhere to relevant laws and regulations Our expertise encompasses state audits, as well as compliance with both Vietnam and international audit standards recognized within the country.
The content will be conducted during an audit:
The management and use of assets and capital in the company
Determining income, expenses and results of production and business activities
Determining the obligation to submit to the State Budget
The observance of the regime of economic and financial management, accounting.
Through auditing, the issues will be clarified:
Does the information on the financial statements of the customer reflect honestly and reasonably the financial situation and business results in the fiscal year?
Financial statements and financial information must be prepared in accordance with the current financial and accounting regulations set forth by the Ministry of Finance, ensuring that these standards are applied consistently The audit's scope focuses on evaluating compliance with these established regimes and standards.
The scope of the audit is the financial statement audited:
Statement of profit or loss
An AASC audit consists of three stages: planning audit preparation,conducting audits, ending audits
Figure 2.3: Financial statement audit process in AASC Auditing Firm Limited
The audit process initiates with customer access, utilizing AASC patrons from previously stored audit records AASC prioritizes the review and evaluation of significant changes that greatly impact customers and the audit itself, such as major personnel shifts, capital size adjustments, or substantial market expansions This approach is especially relevant for new customers.
Prepare audit statement Prepare Written representations (if not)
Consider subsequent events and going concern related to financial report.
Test of Control Substantive procedure (Analytical Procedure, Test of Detail)
Auditing planning (strategic plan, overall plan and audit program design)
Evaluate the capacity to understand and learn about business activities and customer management Organizations should conduct thorough research on customers' common business practices, including their products, consumption markets, organizational structures, and key activities This assessment will provide a comprehensive overview of customer service, facilitating the signing of audit contracts, ensuring effective audits, achieving high results, and fostering strong future relationships with clients.
The AASC audit approach emphasizes a comprehensive evaluation that goes beyond financial statements, incorporating an analysis of customer business activities and aligning with the management's application requirements.
AASC prioritizes understanding its customers to enhance key operations and optimize audit planning To minimize audit risk, AASC has developed and implemented effective audit procedures that address potential material misstatements in databases Additionally, this customer insight enables AASC to strategically organize its personnel, ensuring the right number of auditors and assistants are allocated for each audit.
AASC focuses on comprehensively understanding business operations and the intricacies of management and customer oversight Upon identifying any weaknesses in processes and controls, AASC promptly informs the customer to ensure timely action and improvement.
To achieve success, AASC must prioritize understanding customer needs while adhering to relevant standards and regulations By integrating financial statements, operational practices, and management requirements, AASC can effectively demonstrate compliance with applicable accounting standards This comprehensive approach not only ensures accurate financial reporting but also enhances the value provided to clients, helping them exceed market expectations through improved auditing services.
Recognizing the significance of the audit preparation phase, the Company has developed tailored audit plans for each distinct customer group This preparation stage is crucial for ensuring a successful audit process.
Step 1: Assess the ability to accept customers
Step 3: Assess the internal control system
Step 5: Assess materiality and audit risk
Step 6: Audit planning and design audit procedure
Access the ability to accept old clients or accept new clients
The assessment typically utilizes a questionnaire tailored to AASC regulations, with the specifics of the questions varying based on whether the customer is new or existing with the company.
The questionnaire for existing clients is designed to gather updated information, assessing any new risks for the current year that might lead auditors or the company to reconsider their service provision.
The questionnaire for new clients aims to assess the rationale behind selecting a new audit option, enabling auditors to evaluate their capacity to accept the audit It involves reviewing the internal control system and the integrity of the Board of Directors, as well as communicating with previous auditors to gather insights on management integrity, any disagreements, and other critical issues This information will help auditors synthesize their findings and make informed decisions regarding the acceptance of the audit engagement.
Auditors gather baseline information to tailor audit procedures based on the specific characteristics of clients' activities, which aids in identifying high-risk areas that require targeted audit measures To effectively assess the risks of material misstatements, auditors must develop a comprehensive understanding of the entity and its surrounding environment.
Information gathering is usually done through the following procedures:
- Understanding the business lines of customers, auditor can determine the importance and structure of critical items that are not the same among businesses.
Fixed asset audit in financial statement audit client X performed by
This article focuses on the auditing procedures of fixed assets conducted by AASC Audit Firm at X Company as of December 31, 2019 The analysis highlights the comprehensive audit process employed by AASC to ensure accurate assessment and compliance in the management of fixed assets.
Three core stage included audit planning; audit implementation and finish the audit are carried out step by step.
X Limited Company has a longstanding relationship with AASC Audit Firm Limited, which has provided audit services for the financial years ending December 31, 2017, and December 31, 2018 Recently, both parties signed an engagement letter for the audit of financial statements for the year ending December 31, 2019, outlining key details such as audit fees, objectives, and scope This engagement letter adheres to VSA 210 standards.
Organizing audit team and preliminary audit work
Audit team for audit work in clients X includes 4 members: 01 Senior in- charge, 02 Audit Associates and 01 Audit Intern.
The Senior in-charge plays a crucial role in task delegation among team members, engaging directly with clients to address material issues This individual is also accountable for managing complex Financial Statement Line Items (FSLI), while assigning less complex tasks to other team members.
Base on the judgment about the materiality of Fixed assets, a one-year or two- year experience
Audit Associate will be responsible for Fixed assets of client X Audit work (fieldwork) of client X will be performed within 7 days.
2.3.1.2 Gather the clients’ information a) General information about client X and Fixed assets segment
X Limited Company, founded in the Socialist Republic of Vietnam, operates under Business Registration Certification No 2600116271, issued by the Planning and Investment Department of P city on February 14, 2007 The company is legally represented by its General Director, Mr Trieu Q, while the accounting department is managed by Chief Accountant Vu Ninh P.
The principal activities of client X includes:
- Producing and trading PCB 40 cement, PCB 30 and commercial clinker;
- Exploiting and trading in construction stone and traffic stone;
The company, backed by state capital managed by the Department of Finance, is well-positioned to offer cement for various projects funded by the budget Its products and services are competitively priced, falling within the medium range, making them accessible for a wide array of construction needs.
X Limited operates in the cement, stone, and construction materials industry, maintaining a consistently high balance of fixed assets, which constitute a significant portion of its total assets Auditors conduct site visits to observe operational activities, gaining insights into the company's asset safeguarding practices and the condition of its machinery, equipment, and transportation vehicles They collect essential documentation, including ledgers, detailed asset listings, physical count minutes, disposal records, handover minutes, disposal decisions, and payment vouchers This information is crucial for auditors to evaluate the material impact of fixed assets on the company's financial statements.
Tangible fixed assets constitute over 90% of the total fixed assets in cement production lines, primarily comprising machinery and equipment Additionally, these assets include extensive factory facilities and transportation means, highlighting their significant value in the industry.
Intangible fixed assets include: Computer software; land use right value.
The ongoing construction project involves the establishment of production lines, including a rotary kiln for cement production with a capacity of 1,200 tons of clinker per day, alongside a crushing line capable of processing 65 tons per hour, as well as several smaller initiatives Additionally, the project adheres to specific accounting policies and internal controls related to fixed assets.
Fixed assets are stated at historical cost less accumulated depreciation
Historical cost encompasses all expenses directly related to acquiring fixed assets, as well as costs necessary to prepare these assets for use While expenditures associated with the purchase of fixed assets are capitalized, maintenance expenses for these assets are recorded in the Statement of Profit and Loss.
Jurisdiction for the purchase of fixed assets according to rules and regulations:
The General Meeting of Shareholders has determined that any acquisition of fixed assets and capital construction investments exceeding 50% of the Company's total asset value, as indicated in the most recent audited financial statements, requires careful consideration.
The Board of Directors has determined that any procurement, investment, and construction of fixed assets exceeding 10% to 50% of the Company's total asset value, as indicated in the most recent audited financial statements, requires special consideration.
The General Director of the Company determines that the acquisition, investment, and construction of fixed assets will not exceed 10% of the total asset value as reported in the most recent audited financial statements.
Table 2.4.1: Describe the cycle of internal control applies for fixed asset and related department Describe cycle of internal control applies for Fixed asset Performing
Department 1.1 Planning for procurement and investment:
The company's office consolidates procurement proposals and construction investment plans for fixed assets from various departments, balances the development investment capital, and prepares a comprehensive procurement report for submission to the relevant authorities for approval.
Department in need of assets, planning department
The General Director of the Company reviews the Plan of procurement, construction investment of fixed assets,
On the basis of the selected supplier, the Office notifies the supplier, negotiates a contract, then prepares and submits an economic contract.
1.4 Signing and implementing economic contracts:
The office monitors the progress of contract performance
Upon the supplier's transfer of fixed assets to the Company as per the contract, the office will collaborate with the appropriate department to inspect the received assets and will sign the handover note to confirm the transaction.
Planning department, departments in need of use
1.6 Payment to suppliers and bookkeeping:
The office gathers, checks records and transfers the fixed asset procurement documents to the accounting department.
Documents include: Economic contracts, contract liquidation, sales invoices, fixed asset delivery and receipt records, liquidation of technical contracts, other documents related to transportation, installation and commissioning costs.
Payment accounting checks fixed asset procurement documents, initials on a word, prepares payment procedures, and submits to the Director of the Company for approval.
Payment vouchers, after being signed for approval by the
Director, must be paid to customers, then recorded in accounting books
Table 2.4.2: Describe the cycle of internal control applies for fixed asset and related department Describe cycle of internal control applies for Fixed asset Performing
Department 1.1 Establishment of Council, evaluation of fixed assets value:
The office compiles a list of liquidated assets for submission to the General Director, based on the quality of fixed assets assessed through inventory verification.
General Director of the Company issued a Decision to liquidate fixed assets, established a Council of fixed assets evaluation.
Particularly, fixed assets liquidated in the form of dismantlement and destruction will organize a Council for liquidation and liquidation of fixed assets.
Council evaluates the value of fixed assets, offering reasonable recoverable prices The sale of assets will be done by the
Company Office At the same time, reassess the value of materials and scrap recovered from the liquidated assets when reusing for production and business.
1.2 Collecting money, transferring fixed assets:
Based on the results of the sale of assets and vouchers transferred by the Company's Office, the accountant will collect the money and issue a financial invoice to the buyer.
The administrative department makes a Minutes of handing over fixed assets to the buyer and the seller The buyer signs to receive the goods.
Accounting book of income from liquidation and expenses for liquidation of fixed assets
For recovered supplies and scrap, accounting records other income from the recovered value.
1.4 Inspection of accounting and bookkeeping:
Periodically, chief accountants check the accounting and bookkeeping
Assessments on audit of fixed assets in financial audits conducted by
by AASC Auditing Firm Limited Company.
AASC management leaders prioritize ongoing engagement by meticulously evaluating risks before entering contracts They recognize the significance of fixed assets in financial statements and adhere strictly to the established audit plan structure, especially for clients that were audited in the previous year.
Collecting clients' information, policies, and rules is essential for ensuring compliance and timeliness The business environment and strategies of clients are reviewed annually, particularly in relation to plans concerning fixed assets.
Auditors at AASC must prioritize the analysis of additions and disposals of fixed assets within the year to determine their inclusion in the audit scope The balance of fixed assets is then subjected to horizontal analysis and compared with prior periods for further clarification during fieldwork and in the financial statements.
AASC audit firms excel in assessing the risks and materiality of auditing fixed assets, utilizing a robust working paper system to effectively evaluate risk levels and calculate material indexes This core action enhances fieldwork efficiency, as fewer changes in materiality lead to a more streamlined auditing process By reliably determining materiality, AASC auditors not only simplify fieldwork but also alleviate the workload for the entire audit team Overall, AASC audit managers demonstrate a high level of professionalism and efficiency in their risk and materiality assessments, resulting in minimal changes during the auditing process.
AASC Company has developed a comprehensive sampling audit program tailored for each segment, including fixed assets, ensuring that all audit documents align with specific procedures This structured approach enhances audit efficiency and saves time, allowing team leaders, managers, and directors to easily review team members' work The audit planning process for each client is secure and adheres to established auditing standards Experienced Senior Associates, along with Managers or Senior Managers, oversee the audit planning and execution Typically, the audit team leader is an auditor from the previous year, facilitating a deeper understanding of the client and enabling effective audit planning.
Audit procedures are meticulously executed according to the established audit program to achieve the intended objectives By maintaining clear references between segments, auditors can minimize workload, prevent duplication, and improve overall effectiveness For instance, depreciation expenses for fixed assets are recorded within operating expenses that have already been audited Throughout the audit process, any issues that arise are addressed through collaborative discussions to reach a consensus among auditors This teamwork ensures efficient use of time and resources, such as when auditing fixed assets, where auditors conduct thorough checks on cash flow, including collections, payments, and bank deposits Flexible techniques for collecting auditing evidence, such as interviews and observations, are employed to ensure that the data gathered regarding the fixed asset register is reliable and robust.
Auditors employ flexible methods to obtain reliable audit evidence, often combining various approaches to enhance accuracy and efficiency These strategies, developed through years of experience, not only reduce the time required for audits but also significantly lower costs By integrating analytical procedures with detailed testing, auditors can assess variances between fiscal years, allowing them to validate their findings through thorough examination.
An effective internal control system reduces the need for extensive testing and detailed inspections during audits When a unit's internal controls are well-designed and implemented diligently, auditors can have greater confidence in the company's operations This strong internal control framework not only minimizes control risks but also streamlines the audit process, leading to a more efficient evaluation of the company's financial integrity.
The detailed inspection procedure has been thoroughly implemented to evaluate the influence of assertions on the fixed asset account, allowing for a comprehensive analysis of the customer's business activities and the associated materiality and risks in the financial statements The auditor has meticulously collected and inspected all relevant contracts, minutes, and vouchers related to fixed assets Additionally, interviews with the Board of Directors were conducted to verify the authorization of fixed asset purchases and the status of construction in progress, ensuring the effectiveness of the company's approval and internal control systems During this examination, all collected documents and auditor notes are systematically referenced with AASC reference numbers, facilitating easy comparison and review, and enhancing the overall inspection process.
AASC places significant emphasis on the finishing audit process After completion, the senior associate reviews the working documents of the associate in charge, while the manager or director directly examines the auditor's documentation for critical audits Early distribution of the management letter to clients ensures high-quality audits The assessment of subsequent events and the going concern assumption is conducted meticulously, adhering to accounting standards to deliver optimal service to clients All audit evidence is gathered comprehensively during fieldwork without any delays.
The company employs a scientific approach to restore audit files and evidence, ensuring that documents such as vouchers, certificates, and minutes are systematically numbered and organized in both physical and digital formats Each audit file is clearly labeled with the client's name and the audited year, while dedicated audit teams are responsible for managing and maintaining the integrity of their respective clients' audit files.
Following the audit, the senior auditor conducts a meeting with the client to address the existing issues and limitations in their accounting and internal control systems This discussion not only provides valuable insights for enhancing the client's accounting organization but also fosters a strong relationship between AASC and its customers, grounded in integrity, transparency, and collaboration.
Thanks to the advantages of the audit organization, AASC has built a brand and won its position and reputation with customers.
- About staff qualifications and professional training for employees
AASC boasts a skilled team of experienced auditors, supported by the dedication of its dynamic, knowledgeable, and creative staff The company fosters an ideal environment for auditors to grow professionally, as its team has successfully conducted audits for numerous large corporations across various industries.
The company's management team comprises seasoned professionals with extensive experience in auditing and effective management, resulting in a streamlined and efficient organizational structure tailored to the unique demands of the audit industry.
The company prioritizes training and coaching to enhance the skills of its officials and employees through both departmental and company-wide sessions, as well as systematic professional development programs organized by the Ministry of Finance and relevant organizations This commitment ensures that employees are consistently updated with the latest knowledge in accounting, auditing, and finance, enabling them to adapt swiftly to state and international regulations As a result, the quality of audits for specific mobile phone numbers and financial statements is significantly improved, providing the company with a competitive edge in the highly competitive auditing industry.
- About the audit record system
CONCLUSION
Chapter 2 of this thesis has presented the reality in Fixed assets audit progress performed by AASC Auditing Firm Limited Company Chapter 2 includes overview about AASC and summary of audit progress in fixed assets auditing as well as the assessment about the strength and weakness in Fixed assets audit performed by AASC Auditing Firm Limited Company At AACS, audit progress is designed completely and tightly through audit work and audit procedures that need to be performed in order to assess the truth and fairness in recording, presenting each FSLI and especially in Fixed assets segment Therefore, Auditors can summarize misstatements and adjustment accounting treatments (if any) with this segment and assessments of Auditors Analyzing result in Chapter 2 is the premise for recommending solution in order to improving Fixed assets audit in Financial statements audit performed by AASC Auditing Firm Limited Company.