Perfecting the Audit Method to Determine Enterprise Value

The auditor recognizes the reasonableness of the information as a basis for drawing appropriate conclusions on the business valuation activity.

* Detailed inspection procedures through auditing the components of the enterprise valuation results report:

This detailed audit process is conducted depending on each type of report prepared according to the selected method of determining the value of the enterprise. The elements on the report of the results of determining the value of the enterprise according to each method are clearly specified in the legal document. Therefore, the auditor needs to apply appropriate methods and techniques to each element on the report to obtain valid evidence as a basis for drawing audit conclusions. The characteristic of detailed audit here is that the audit is comprehensive on all elements constituting these reports.

3.2.3.3. Audit completion stage

The head of the audit team performs the following tasks:

- Synthesize evidence collected during the audit process to determine the enterprise value for each item.

- Check and review the entire audit process and evaluate the completeness and effectiveness of the evidence collected;

- Check the working papers of each audit section, evaluate the audit results of each section that have been performed according to the audit program and objectives;

- Analyze and review the basis for assessing the value of assets, receivables, payables, inventories... according to current state regulations;

- Based on the results of the audit data synthesis to determine the enterprise value, the auditor prepares a draft Audit Report to determine the enterprise value and sends it to

to customers and notify customers of the results of determining the value of the enterprise.

- After both parties review and verify the implemented contents and the audit results determining the enterprise value, the audit team will issue an audit report determining the enterprise value and send it to the client and the appraisal agency for approval.

The audit report on enterprise valuation reflects the following factors:

- Name and address of the auditing company: The audit report on enterprise valuation must clearly state the name, logo, transaction address, telephone number, fax number and other contact numbers of the auditing company (or branch) issuing the audit report on enterprise valuation.

- Audit report number on enterprise valuation: Audit report number on enterprise valuation is the number of the audit report on enterprise valuation issued by the auditing company each year. The audit report number on enterprise valuation must be officially registered in the document system of the auditing company.

- Title of the audit report on enterprise valuation: The audit report on enterprise valuation must have a clear and appropriate title to distinguish the audit report on enterprise valuation prepared by the auditor from other types of reports.

- Recipient of the audit report on enterprise valuation: The recipient of the audit report on enterprise valuation is the person who signs the audit contract with the auditor (auditing company or auditor).

- Introduction of the audit report on enterprise valuation: The introduction of the audit report on enterprise valuation presents the following issues:

+ Audit objectives to be achieved in the audit to determine the value of the enterprise.

+ The subject of the audit is determining the value of the enterprise.

+ Responsibilities of the audited unit and responsibilities of the auditor in the audit to determine the value of the enterprise.

- Paragraph presenting the scope and basis for conducting the audit:

+ The report must clearly state the legal basis related to the process of determining the enterprise value, which is the legal basis for conducting the audit. The report clearly states the auditing standards (National auditing standards, or accepted international auditing standards) applied.

+ Present the audit work that has been planned and performed to obtain reasonable assurance to express an opinion, clearly stating the audit methods applied and the scope of the audit on determining the value of the enterprise.

- Paragraph presenting the auditor's opinion on the audit subject: The audit report on enterprise valuation must clearly state the auditor's opinion on the results of the enterprise valuation performed in the following aspects:

+ The report on the results of determining the enterprise value reflects honestly and reasonably the quantitative information on the current status of determining the enterprise value.

+ The process of determining the enterprise value has complied with current (or accepted) accounting standards and regimes, as well as compliance with legal regulations related to the enterprise value determination activities of the audited unit.

- Location and time of preparing the audit report on determining the enterprise value: The audit report on determining the enterprise value must clearly state the date, month, year of completion of the entire audit work and the location (Province, City) of the company or branch of the auditing company responsible for issuing the report.

conduct audit reports on enterprise valuation.

- Signature and seal: The audit report on enterprise valuation must be signed with the name of the auditor responsible for the audit, and the name of the Director (or authorized person) of the auditing company responsible for issuing the audit report on enterprise valuation. The signature of the Director (or authorized person) must be stamped with the seal of the company (or branch) responsible for issuing the audit report on enterprise valuation. The pages of the audit report on enterprise valuation must be stamped with overlapping seals.

The language presented in the audit report on enterprise valuation is the official language of a country, such as for the audit report on enterprise valuation of an auditing company operating in Vietnam, the report must be prepared in Vietnamese.

The audit procedure for determining enterprise value can be illustrated in diagram 3.1 below.

3.2.4. Perfecting the auditing method to determine enterprise value

3.2.4.1. Completing the assessment of the reasonableness of the enterprise valuation method

An important issue that auditors need to focus on during the audit process of determining the value of a business is: considering whether the valuation methods used are reasonable and appropriate to the operating situation and current status of the business being valued. In the process of determining the value of a business, appraisers can use many different methods to determine the value of the business such as the asset method, the cash flow discount method, the method of quantifying commercial advantages (Goodwill), the P/E method, etc. Each method has its own advantages and disadvantages and is applied depending on each unit being valued.

Find out the basics and information

on the legal obligations of the subject

Perform th

incubation analysis

Rating h

internal control system

Assessment of materiality

Audit preparation

Planning k

detailed audit

Perform compliance testing

Conduct audits

Audit completion

Perform general analytical procedures

Perform basic testing

Analyze and evaluate the evidence collected.

Draft audit report

Talk to customers

Issue audit report

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	Auditing of components of the report on the results of the implementation of the GMS	Auditing of legal documents
		Audit of financial handling before the enterprise valuation
		Auditing of valuation by method of determination
Summary of audit evidence collected

Diagram 3.1: Auditing sequence to determine enterprise value

There are two popular approaches used to determine enterprise value in Vietnam today:

- The asset method is used in cases where the unit is not operating well;

- The income/cash flow method is used in cases where the unit is operating well: These are units that are capable of generating a large return on investment. Valuation by the income/cash flow method has different methods:

+ Capitalized income method: This method is used in the following cases:

 Current profitability represents the profitability that the business can achieve in the future;

 Stable future profitability;

 Little or no change in the way the business is run;

 Future investment needs are consistent with the requirements for maintaining the current structure;

+ Discounted cash flow method (DCF): This valuation method is used for the following types of units:

 Businesses have an unlimited operating time;

 Newly established businesses do not have sustainable income;

 Growing businesses that are not currently generating positive operating cash flows or are still in the early stages of development and experiencing strong growth in revenue and earnings.

Thus, it can be seen that each valuation method is suitable for each unit in each specific condition. Therefore, when conducting an audit to determine the value of an enterprise, the auditor needs to evaluate the reasonableness of the method.

Business valuation has a great influence on the value of the business. To determine whether the valuation method used is reasonable and suitable for the operating situation and current status of the business being valued, the auditor performs the following tasks:

First, the auditor needs to determine whether the unit is newly established or has been operating for a long time. Then, the auditor will check the company's establishment license or the decision to establish the unit as a basis for choosing the appropriate method;

Second, clearly determine the actual operating situation of the unit, whether it is operating well or not, and at the same time evaluate the unit's profitability in the current year and in the next few years. This work is done through the process of analyzing information, especially through the basic financial ratios of the unit when planning to determine the value of the enterprise;

Third, the auditor collects information from those performing the business valuation to determine the reasons for choosing the valuation method being applied;

Fourth, compare with the conditions of the method and current legal regulations to assess the reasonableness of the applied valuation method.

3.2.4.2. Completing the assessment of the internal control system during the audit planning stage

In reality, the assessment of the internal control system in the audits to determine the value of the enterprise is mainly based on the qualifications, capacity and experience of the auditors and is not specifically carried out on working papers. To learn about the internal control system, the auditors ask questions to the Steering Committee for equitization of the enterprise, the client's board of directors or related employees. The assessment is based only on experience.

The auditor's subjective experience may lead to inaccurate assessments of the entity's internal control system.

Therefore, to evaluate the internal control system of the client, it is necessary to create a questionnaire on the internal control system for each item. The internal control system questionnaire is prepared in a pre-made internal control system questionnaire and is applied by auditors to all clients. The disadvantage of this standard internal control system questionnaire is that it is created for all types of clients, so it may not be close to the actual situation and business characteristics of some clients and is not feasible for small clients. Therefore, when evaluating the internal control system of the client, for the audit to determine the value of the enterprise, in addition to using the internal control system questionnaire, the practical experience of the auditor is very necessary. To have a basis for creating a questionnaire on the internal control system when determining the value of the enterprise, the auditor relies on the following factors:

- Content and results of discussions with customers on related issues;

- Checking and reviewing documents and information related to enterprise value provided by the accounting system and internal control system;

- Observing warehouse management system, fixed assets, technological processes, business processing, ...

Based on the answers in the questionnaire on the internal control system, the auditor will recognize the presence or absence of each sign of control over assets, receivables, payables, inventories, etc. of the customer when determining the value of the enterprise. Some errors in the main control processes for determining the value of the enterprise that are likely to occur are: