Nghiên cứu kiểm toán tài sản cố định trong kiểm toán báo cáo tài chính RESEARCH ON AUDITING OF FIXED ASSETS IN FINANCIAL AUDIT

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 do 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
2


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.

3


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

4


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
3 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

5


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 do 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.

6


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

7


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

8


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
9


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

registering fee (if there is any).
Tangible fixed assets with deferred payment: original price is the amount paid
at the date of acquisition. The difference between the deferred payment price
and the immediately paid purchase price will be accounted into expenses
according to the payment period, less the difference being included in the
original cost of tangible fixed assets (capitalized) as prescribed in the

-

accounting standard "Borrowing costs".
Tangible fixed assets that are self-made or self-constructed: Original price is
the actual cost of fixed asset that the company construct or built by
themselves plus (+) installation and commissioning costs. Any internal
interest and unreasonable expenses (such as wasted materials or other labor
used in excess of normal norms during construction or homemade process)

-

are excluded in the original price
Tangible fixed assets are bought in formula of exchanging: The original price
of a tangible fixed asset bought in formula of exchanging with another
tangible fixed asset or other assets are measured at the fair value of tangible
fixed asset established, the value of assets to be exchanged, after changing the

-

amount paid or recovered.
The original price of tangible fixed assets that bought in the formula of
exchanging with a similar fixed asset, or might be formed by the sales in
exchanging for the ownership of a similar property. In both cases there are no
losses or gains that recorded during the exchanging. The original price of the
fixed asset will be accounted as the residual value of the fixed asset to be

-

exchanged.
Fixed asset that was donated from other sources: The original cost is recorded

at the original reasonable value plus (+) related expenses
For intangible fixed assets:
The original cost of an intangible fixed asset is determined as follows:

-

Land use rights: original cost is the amount of expenses that are related to the
use of land, including expenses for land using rights, compensation for area

11


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

clearance, ground clearance, registration fee (if there is any) does not include
-

expenses for construction of works on the ground.
Issuance right: The original price is all the actual expenses the enterprise has

-

spent to have the right to issue.
Copyrights and Patents: Original costs are the actual costs of obtaining a

-

copyright or patent.

Trademark: The cost is the actual costs directly related to the purchase of the

-

trademark
Computer software: Cost is the total cost of the company actually spent on

-

computer software.
Licenses and Franchise Certificates: Cost is the amount an enterprise pays to
obtain a license to perform a work, such as a license to produce a new

-

product.
Other intangible fixed assets: Cost here is actual costs incurred to acquire
these fixed assets
The original cost of a fixed asset will only be changed below:

-

Re-evaluate fixed assets’ value under the decision on inventorying and

-

revaluation property of the State
Upgrade of fixed assets.
Dismantling one or more parts of a fixed asset.
The costs incurred after the initial recognition satisfy the conditions for

recording the increasing of the original cost of fixed assets.
When changing the original cost of a fixed asset, the company must
record clearly stating the changing or re-determination of the original cost
index, the residual value, the accumulated depreciation book and the lagging
calculated according to current regulations.
For financial leases:
Original cost is fair value (if the current value of the minimum lease
payments is less than the fair value, the original cost of the minimum lease
payments is the current value of the minimum lease payments.
The difference between the fixed asset lease payable and the original
cost of that fixed asset will be accounted into business expenses in accordance
12


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

with the term of the financial leasing contract.
1.2. Audit

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 confirmed that the financial statements have been prepared
on the basis of standards and the current accounting standards (or accepted),
comply with relevant laws and reflect honest and reasonable or not
Fixed asset is an item on the financial statements, so the audit objective
of fixed asset is also following the above provisions. However, fixed assets

have particular characteristics as compared to other assets because fixed
assets are often less frequent, the amount of each purchase, investment for
fixed assets are usually large and fixed assets are kept and tracked in the
accounting books for a long time. Therefore, the focus of fixed asset audits is
the process of investing, procuring and reducing fixed assets in the period

-

rather than the balance on the account transferred from the previous year.
The objectives of the asset audit are as follows:
Internal control over fixed assets is adequate.
All fixed assets are evaluated in accordance with current standards.
Fixed assets have been recorded including the balance of the previous year are
real and the increase or decrease in fixed asset depreciation during the year is

-

reasonable.
Presentation and declaration of fixed assets: The fixed assets must be
presented in the original cost, the residual value and the accumulated

depreciation - including the disclosure of depreciation method.
1.3. Sequence in auditing fixed assets in financial audits
1.3.1. Audit planning
1.3.1.1. Initial audit planning
According to Vietnamese auditing standard no. 300: "Strategic plans
must be prepared for large audits in terms of scale, complexity, wide area or
annual financial statements audit". This work is usually developed by the
principal auditor to develop and produce an initial plan for the audited
entities, to guide the detailed planning and the preparation of the audit

13


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

program.
1.3.1.2. Understanding the entity’s business and its environment
- Auditors need to collect information to obtain a full understanding of the
customer, auditor need to understand customer’s accountingmsystem
•

,potential problems and internal controlmsystem.
Firstly: auditor should collect information about the customer's legal
obligations. For the process of auditing fixed assets, it is necessary to gather
papers such as transcripts of capital contribution, handover of capital, and

•

documents related to the fixed assets contribution of capital.
Secondly: understanding customer's business situation. According to the VAS
No. 310 (Vietnamese Standards on Auditing ) "Understanding the business
situation", "In order to perform the audit of financial statements, auditors
must have necessary knowledge, business. This is to assess and analyze the
events, operations and practices of the units audited, which, according to the
auditor, has a material effect on the financial statements, the inspection of the
Auditor or to the Audit Report ". Knowledge includes a general understanding
of the economy, business activity of the company and in-depth understanding

of the specific aspects of a structural organization such as production line,



organizationalmsystem, capitalmsystem.
Activities and results of clients: this will support the auditor know does the
customer has a lot of fixed assets, and do the fixed asset has an effect on the



their financial statements.
Business environment and factors outside manufacturing business impact on



customers such as socio-economic, legal ...
Customer’s objectives and business strategy: this will indicate in the future
whether the company has invested in the buying or liquidation of fixed

assets.
1.3.1.3. Preliminary analytical procedures
- Applying analytical procedures in all auditing periods.
- Analytical procedures, as defined by Vietnam Standard for Auditing
No. 520, "are the analysis of important data, information, and rates,
thereby identifying trends in volatility and find relationships that

14


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

conflict with other relevant information or have a large discrepancy
-

with the expected value.
At this stage, after obtaining baseline information and information on the
legal obligations of the client, the auditor conducts the analytical procedures.

•

The processes used by the auditor include the following 2 types:
Horizontal Analysis: For fixed asset items, auditors compare previous year's
data with this year, which shows abnormal fluctuations and determines the
cause. Simultaneously, customer data can be compared with industry data by

•

auditors.
Vertical analysis: This is based on the comparison of the relative ratios of
accounts and accounts on the financial statement. For fixed assets,
accountants may compute an amount of ratios such as self-employment rate,

investment rate.
1.3.1.4. Understanding internal control and assess control risks
- The internal controlmsystem of the customer and the control risk assessment
help the auditor design the appropriate auditing procedures for the asset item,
assessing the volume and the complexity of the fixed asset. Then, auditor
estimates the volume and complexity. Practical Standards for Auditing No. 2

states: "Auditors must have sufficient knowledge of the accounting system
and internal controlmsystem of the customer to plan and develop an effective
approach. Auditors must use professional judgment to assess the audit risk
and determine auditing procedures to reduce these risks to an acceptable
level”.
- If the internal controlmsystem is more effective, the control risk will be
smaller and vice versa. If the risk of control is higher, the internal
controlmsystem is weaker. The auditor examines internal control
•
•
•

system in two main features.
The auditor conducts the examination of the internal controlmsystem of

the client in the below forms:
Interview the company staff.
Visiting the actual fixed assets
Checking book vouchers related to fixed assets

15


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

-

Receipt of a written confirmation from a third party .

Observe the internal control procedures.
Redo the procedures.
After performing the above tasks, the auditor assesses the design control tests

•

and the control risk:
Determining the types of errors and fraud that occur in the item of fixed

•

assets.
Evaluate the internal controlmsystem in detecting and avoiding fraud and

•

errors.
If the auditor considers that the control risk can be lowered to a lower level

•
•
•

because the control risk is low, the auditor will verify the required control. On
the other hand, if the stage of control risk is high, the auditor will not need to
carry out control checks but must conduct a basic audit at a reasonable level.
- For fixed assets, the auditor ought to inform the fully information about
internal controlmsystem. The internal controlmsystem must be effective
and be reflected in the safeguard and controlling of good fixed assets.
When auditing the internal controlmsystem, auditors should concern

•

about the following questions:
The company planed and budgeted for the purchasing of fixed assets?
The business often be compared between the general book and detailing

•
•

book?
Periodic inventory and reconciliation with accounting books?
The differences between the actual price reviewed and approved and the cost

•

estimate?
Shall the company set up sale councils comprising members and liquidation

•

according to regulations when they are selling or liquidating fixed assets?
Is there a policy to differentiate among the cost incurred after opening

•

acknowledgment of the historical cost of a fixed asset and the valuable
lifetime of the asset or the cost of production in the period?
• The method of depreciation is correct, appropriate or not?
1.3.1.5. Assessment of audit materiality and audit risks

 Assessment of audit materiality
- According to Vietnam Auditing Standard No. 320: "Materiality is the concept
of size and scale of errors (including omissions) of financial information

16


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

either individually or group. In a particular context, if based on this
information for judgment, it is impossible to correct or to draw false
-

statements.
FASB 2 has the following conceptual validity (Avil A. Arens, p. 175): "The
magnitude of omissions or misstatements of accounting information due to
surrounding circumstances, the ability to make a person's judgment based on

-

that information may be altered or influenced by the omission or misconduct”.
According to Auditing Standard No. 320 of the Audit, it is stated "Materiality
is the term, which refers to the importance of information (a piece of
accounting data) in the financial report." That means that "information is
essential if the omission or misstatement of information could affect the

-

economic decisions of users of financial statements ..."
Thereby the responsibility of the auditor is to determine whether the financial
statements may contain material misstatement or not, and then make

-

appropriate recommendations.
Determining the initial level of significance, the auditors shall carry out the
opening approximation of the materiality (based on the ratio of profit norms,
turnover and total assets ...) for the whole financial statement. Then the initial
estimate of the materiality of the items in the financial statements is allocated.
The audit firms often built the materiality level for each item in the financial
statements.
Diagram 1.2. Assessment of the materiality of the item of fixed assets

17


Supervisor: PhD. Doan Thanh Nga

Initial estimate of materiality for fixed asset items

•

Allocation the initial estimate of the materiality of the asset

•

Estimation of total errors in fixed assets

•

Estimate the combined error

•

Trần Ngọc Mai

1
2
3
4

significance.
Compare the estimated error of the estimate to the original estimate or revise the initial estimate of the

5

-

•



Assessment of risk audit
According to Vietnam Audit Standard No. 400, risk assessment and internal
control: “Audit Risk (AR) is the risk that auditors and audit firms make
inappropriate comments when the audited financial statements have material

-

-

misstatements”.
Risk Assessment Audits through a three-part assessment:
DR = AR / IR * CR
Note: AR is the audit risk
IR is inherent risk
CR is control risk
DR is detection risk
Materiality has a close relationship with risk audit. The audit risk will reduce,
if the acceptable (or critical) tolerance level is increased, and vice versa. In

-

auditing, the auditor expects AR to be as small as possible .
In the case of fixed assets, errors that may occur are often related to inherent
errors, as follows:
• Risks that associated to the historical cost: The historical of a fixed
asset may be revealed in the actual deviance. In the situation of an
increasing in fixed assets, the price is often higher than the actual price.
In the situation of a decreasing in fixed assets, the former cost is lower
than the actual price.

18


Trần Ngọc Mai
•

Supervisor: PhD. Doan Thanh Nga

Risk that associated to depreciation of fixed asset: The calculation and
allocation depreciation of fixed asset can be wrong. It is possible that
the method of depreciation of customers is inconsistent with current
regulations and does not conform to the method of recovering the

•

economic benefits of each fixed asset.
Risks that associated to upgrading and repairing fixed assets: It can
guide to errors when not keep tracking the increasing in the original
cost of fixed assets for the situation of upgrading fixed assets and
accounting them into fixed asset repair expenses of the company when
many fixed asset repairs It is misunderstood as upgrading fixed assets

•

-

and vice versa
Risks about leasing assets: Many fixed asset lease activities are not

classified as leases.
Above are the potential errors that may occur on portions of the fixed assets.
When assessing risks, the auditor primarily approaches the detection of
inherent errors and minimizes the risk. From these tasks will help the auditor
to design and implement necessary audit methods to collect sufficient audit

evidence.

1.3.1.6. Designing audit program
- After performing the above tasks, the auditors shall have to formulate a
-

specific audit program for the audit.
The Auditing Program is a detailed plan of the audit work, the time of
completion and the division of labor between the auditors and the expected

-

information to be collected.
According to Vietnamese Auditing Standards No. 300 "Auditors and Auditing
Companies must prepare the Audit Program, which defines the content,
schedule and scope of the Audit procedures necessary to implement the Audit

Plan”.
1.3.2. Audit implementation
1.3.2.1. Performing tests of control
- Control testing is performed only after learning the internal controlhsystem
and is considered to be in effect. Control trials were conducted to collect audit

19


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

evidence about the design and operation of the internal controlksystem.
Vietnamese Standards on Auditing No. 500 stipulates: “Test of control is a

test to gather audit evidence on the appropriate design and effective operation
-

of the accounting system and internal controlksystem."
For fixed asset audit, test of control is performed as below:

Table 1.1. Tests of Control
1. Existence

2.
Completeness

The internal control process
-Fixed assets that noted in the
paperwork presently used by
the manager, independence of
the asset managing department
of this part from the bookkeeping section.
-The faithfulness of letter
requesting
the
purchase,
approved letter of approval,
buying contract and minutes of
the usable fixed assets and the
fixed asset cards.
-The vouchers of liquidation
shall be irrecoverable, avoiding
the re-usage.
-Each asset has a set of minutes,

which is noted from the
purchase of the fixed asset to
the company till the sale,
liquidation of fixed assets. The
recording, the historical cost
price of the asset is created on
the legal documents mentioned
above.
20

The common test of control
- Observing the fixed assets
and considering the separation
between the management and
recording functions.
-Checking vouchers of internal
control
-Checking for the signs of
cancellation.

-Checking the fullness of
documents associated to fixed
assets.


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

3.Rights and Assets under the ownership of

obligations
the entity are recorded in the
item of fixed assets which are
used and managed by the
company. Assets that not owned
by the company are noted off
balance sheet.
4.Approvals
-Approved these transactions
increased,
decreased
depreciation and amortization
are decentralized to the
managers of the business.

-Combination of physical
inspection
with
the
examination of documents,
legal documents on property
rights.

5.Machine
accuracy

-Examination signs of the
internal controllsystem.
-Adding
some

papers
ascending from the fixed
assets.

All documents associated to the
buying and liquidation of fixed
assets in the company are
gathered
and
correctly
accounted for by accounting
department. The combination of
detailing book and general
ledger is accurately and
completely tested.
6.Timeliness
The
recording
and
accumulation of fixed assets
shall be finished in time as soon
as the arising operations arise
and satisfy the supplies of
making the accounting report of
the enterprise.
7.Classification -The enterprise has principles
and
on arrangement of fixed assets
presentation
in agreement with manager

requirements.
-Principles of making entries in
fixed asset-related operations
from the book to detailed book.

1.3.2.2. Performing analytical procedures
- Before auditing the increase or decrease

-Interviewing the people who
involved.
-Checking the signs of
approval.

-Checking the fullness and
timeliness of the recording.

-Interviewing
persons
in
charge
to
understand
principles on arrangement of
fixed assets in company.
-Checking accountingmsystem
and arrangement of accounting
books.

in the year, the auditor have to make

sure that the data of detailing ledger is equivalent to the figure imitated on the
21


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

accounting ledger. Therefore, should compare the totals on detailed records
with data on the ledger. An auditor needs to collect or prepare an analysis
table that lists the beginning balance and details of the increase or decrease in
the auditing year to calculate the ending balance. Ending balances will be
audited by reference to previous year audited documents. As assets increase
and decrease during the year, the auditor will collect further evidence of these
•

increases or decreases during the audit process.
In this stage, the auditor may also consider the below financial ratios:
Comparing the ratio of total depreciation expense to the total price of this year
compared to earlier years. To determine the possible errors in the calculation

•

of depreciation during the auditing period.
Comparison of the ratio among the accumulated depreciation of the fixed
assets and the total cost of the fixed assets. To classify, auditor should look for

•

the errors that may happen when recording the accumulated depreciation.

Comparative ratio of total price of major repairs to total cost of fixed assets or
comparison Total cost of renovation with earlier years. In order to find the
costs of production and business capitalized or the cost of capital building

•

investment is reflected deviation into the cost of production.
Comparing the ratio of the total cost of the fixed assets to the value of the
total output in earlier years to search for fixed assets not used in production

which have been liquidated or sold but not yet recorded.
1.3.2.3. Performing tests of detail
 Examine increase of fixed assets
- For each enterprise, the amount of investment in procurement and leasing of
fixed assets is very big. Therefore, book entries and additions to fixed assets
-

increased directly affecting the accuracy of the financial statements.
The increase in fixed assets during the period has been accounted for in the
capital construction in progress, purchasing operations usually combined with
detailed case balance surveys are presented in the below table:

22


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

Table 1.2: Examine increase of fixed assets

Auditing Objectives
Increase
of
fixed
assetsoduring
recordedyyear are as
reasonable
(overall
rationality)

Cost ofpfixed assets
isoaccounted
and
notedpproperly
(calculation of price)

Detailed surveys of fixed asset
account balances
- Comparegthehincreasing in
fixed assets with theoincreasing
of the originaldcost of the earlier
year.
- Assessing the increase in fixed
assets (especially those with
high value) is reasonable for the
business case.
- Assessing the total purchase,
investment, receipt ... Having
comments
on

business
fluctuations
and
economic
conditions
-Checking the invoices of the
seller and the original papers
associated
to
thepincreasingkofjfixedoassets
(records of delivery and receipt
of fixed assets and contracts ...)
- Checking the financial lease
relating to the determination of
the historical cost of the rented
asset.
- Compare each situation with
the detailed book of fixed assets.

Cases of increasing -Check the seller's vouchers ,
Fixed assets are real delivery notes and receipt of
(existence)
fixed assets, minutes of capital
hand-over, minutes of final
settlement of capital building
investment projects, records of
joint venture ...
-Inventory of tangible fixed
assets.
-Checking the buying process,

the price to form a fixed asset
Casespofpincreaseoof
-Review of the seller's vouchers,
fixed assets are fully documents on increase of fixed
recorded
assets, fixed costs of repairing
fixed assets. To detect situations
23

Note
Auditors must have
full
and
deep
knowledge
about
the production and
business of the
enterprise.

-Be aware of the
present principles
and guidelines on
fixed
asset
valuation.
-These
examinations
should be measured
depending on the

stage
of
risk
involved
in
screening the Fixed
Assets items in
financialpstatements
.

This is one of the
most
important
goals of the fixed
assets auditing.


Trần Ngọc Mai

Fixed assetsprevealed
on the balance sheet are
either
owned
or
controlled by the Group.
(Rightskandhobligations
)

Increased fixed asset are
calculated appropriately

(mechanical accuracy).
Cases of increase of
fixed assets are recorded
according
to
classification of fixed
assets
(classification
and presentation)
Cases increased fixed
assets are recorded on
time (timeliness)


-

Supervisor: PhD. Doan Thanh Nga

of forgotten entries in fixed
assets or inscribed fixed assets
into production costs.
- Reassessment of leasing fixed
asset.
-Checking the seller's vouchers
and other documents associated
to the increase of fixed assets.
-Checking the finance lease.
-Consideringowhetherpfixed
assets are made in money of
enterprises or enterprises have

to use money to buy fixed
assets.
-Adding the list of shopping,
distribution, investment,...
-Compares totals in general
ledger.
-Examination of vouchers of
increasingkofmfixedmassets and
bookmentriesmin the accounting
books shall be based on the
accountingmprinciplesmof the
present accountingmsystem.
Inspection of the increase of
fixed assets near the date
(before and after the date of
making the report) to make the
accounting report to check the
book on period.

-As much attention
should be paid to
the
production
machinery.
-Need to check
regularly for land,
buildings
and
property
largely

intangible.
The extent of the
test depends on the
effectivenesslofpthe
internalkcontrol
system.

This objective is
closely related to
the recording of all
cases of increase of
fixed assets and
calculation of fixed
assets. Note the
fixed book entry
period.

Examine decrease of fixed assets
To examine the fixed asset reduction operations, the auditor must consider the
company's decisions on the sale, liquidation, contribution of joint-venture
capital with fixed assets, financial leases, asset revaluation or deficiencies,
loss is accepted and in agreement with the provisions of the current financial
rule or not. It is necessary to conduct a review of the asset reduction activities
to ensure that the assets are properly recorded.
24


Trần Ngọc Mai

Supervisor: PhD. Doan Thanh Nga

-

The most important objectives in the audit of decrease fixed asset are as

•
•
-

follows:
Cases of decrease fixed assets have occurred which have been recorded.
Cases of decrease fixed asset are fully approved.
To achieve the above objectives, auditors may prepare a list of decrease fixed

•

assets activities in the auditing year with the following main criteria:
Declining asset name (name, code of property object, specifications, country

•

of production)
Reasons for reduction (sale, liquidation, contribution of business capital,
decrease evaluation: original price, date of reduction of fixed assets,
depreciation of accumulated assets, the sale, liquidation and value of

-

contributed capital as agreed and accepted by the joint venture parties).
After making the above list, it is necessary to add the indicators (values) of

the table and comparing the amounts on this list with cases of decrease fixed
assets recorded and compared of accumulated depreciation; the residual value
of the fixed asset; costs and income related to the reduction of fixed assets in

-

the fixed asset book.
Normally, when performing the examination of decrease asset in the period,

•

auditors shall perform the following work steps:
If the company wants to purchase more new assets, the company must realize

•

the old assets are carried out liquidated or exchange.
Analysis of other income account (Account 711) to determine whether any

•

income from the sale of property.
If there is a product that is finished in the year, is it necessary to examine the

•

usage of equipment used of this product
Interview the employee to determine if any property is liquidated during the

•

year.
Investigate asset insurance decreases, to see if it originates from the cause of

•
•

the decrease in assets?
Compare the book data with inventory data to see if there is loss of assets
Analyzing the value of collected depreciation to see the exactness of noting

•

the increment and decreasing of fixed assets.
Comparison of the accumulated depreciation and expenses related to the
reduction of fixed assets in detailed accounting books.
25