The auditing process of payroll and personnel cycle in manufacturing companies implemented by ernst and young company

ACKNOWLEDGE First of all, I would like to send my deep thanks to PhD Ngo Tri Trung who has guided me from the beginning of my implementation until the topic "The auditing process of payroll and personnel cycle in manufacturing companies implemented by Ernst and Young company" completed Thank you very much for your precious guidance so that you can bravely carry on and believe in your graduation thesis I would also like to acknowledge the contribution of the researchers, experts, my friends and especially Ernst and Young Vietnam Co., Ltd which help me a lot to complete the thesis And above all, I want to send my deepest gratitude to my family, who have encouraged, encouraged, and given me the most favorable conditions for me to complete this thesis STATUTORY DECLARATION I hereby declare that the Graduation Project “The auditing process of payroll and personnel cycle in manufacturing companies implemented by Ernst and Young company” is the results of my own research and has never been published in any work of others During the implementation process of this project, I have seriously taken research ethics; all findings of this projects are results of my own research and surveys; all references in this project are clearly cited according to regulations I bear full responsibility for the fidelity of the number and data and other contents of my graduation project Hanoi, (day) ……… (month) …… (year) 20… Student TABLE OF CONTENTS ACKNOWLEDGE STATUTORY DECLARATION TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF TABLES CHAPTER 1: INTRODUCTION 1.1 Rationale of the research 1.2 Objectives of study 1.3 Scope of the study 1.4 Structure of the thesis 1.5 Methodologies and Data 1.6.1 Research method 1.6.2 Data source CHAPTER 2: LITERATURE REVIEW .8 2.1 Features of payroll and personnel cycle 2.1.1 Nature and content of payroll and personnel cycle 2.1.2 The forms of payroll and accounting for payroll 10 2.1.3 Potential errors and frauds of payroll and payroll deductions .15 2.1.4 Internal control of payroll and payroll deductions .16 2.3 The process of auditing payroll and payroll deductions in financial statements audit .18 2.3.1 Audit planning .18 2.3.2 Audit implementation .23 2.3.3 Completing the audit .30 CHAPTER 32 PRACTICES OF AUDIT OF PAYROLL AND PERSONNEL CYCLE CONDUCTED BY ERNST AND YOUNG VIETNAM 32 3.1 The audit process conducted by EY Vietnam in ABC company and the necessity of audit payroll and payroll deductions in financial statement audit 32 3.1.1 Overview about audit process in EY Vietnam .32 3.1.2 The necessity of audit payroll and personnel cycle in financial statement audit 34 3.2 Sequence in auditing payroll and payroll deductions in financial statements audit at ABC Company .35 3.2.1 Audit planning for audit of payroll and payroll deductions in financial statements audit of ABC Company conducted by Deloitte Vietnam 35 3.2.2 Audit implementation .51 3.2.3 Completing audit of payroll and payroll deductions at client .76 3.3 Prepare audit report and management letter 78 CHAPTER 4: REVIEWS AUDIT PROCESSOF PAYROLL AND CYCLE CONDUCTED BY YOUNG VIETNAM CO., LTD 79 4.1 Reviews about current situation of auditing payroll and payroll deductions in financial statements audit conducted by EY Vietnam Co., Ltd 79 4.1.1 Advantages 79 4.1.2 Disadvantages .81 4.1.3 The introduction of new EY assistance program 81 REFERENCE 83 APPENDIX 85 LIST OF ABBREVIATIONS Abbreviation Meaning ARP Analytical review procedures ABC EY ABC Limited Company Ernst and Yong Vietnam Limited Company FS GL Financial statements General Ledger LS PM Leadsheet Planning materiality SAD TE Summary of Audit Difference Tolerable errors TOC TOD Test of control Test of detail WCGW What could go wrong? LIST OF TABLES Table 1-1: Guideline on how to identify PM of Ernst and Young Company Table 1-2: Combined Risk Assessment Table 1-3:The guildance threshold levels on the deatailed balance Table 2-1: The ratio of payroll deduction .12 Table 2.2: Audit procedures for transaction of salary expenses during the period 27 Table 2-3: Audit procedures for closing balances of salary 29 Table 2-4 Audit procedures for closing balances of salary deductions 30 Table 3.1:Audit process applied by EY Vietnam 33 Table 3-2: Understanding Customer’s Information 36 Table 3-3: Information related to payroll and personnel cycle at ABC Company 38 Table 3-4: Determining PM, TE, SAD for financial statement audit of ABC Company for the year 2018 44 Item 44 Table 3-5: Combined Risk Assessment 44 Table 3-6 :Initial questionnaire on control risk for the salary cycle and personnel of ABC Company 45 Table 3-7: Analytics for Personal income tax Summary 67 Table 3-8: Summary and analytics for personal income tax 75 Figure 2-1: Accounts in payroll and personnel cycle .14 Figure 2-2: The entries for payroll and payroll deduction in Vietnam accounting system .15 Figure 3-1: Quote of the model audit program when performing analysis procedure of payroll and payroll deductions 47 Figure 3-2: Quote of the model audit program when performing test of detail procedure of payroll and payroll deduction 49 Figure 3-3: Test of detail for payroll deductions 73 Figure 3-4: Audit minute 77 Worksheet 3-1: Reviewing contract .52 Worksheet 3-2: Analysis in detailed of account payable, payroll expense to employees and Leadsheet .53 Worksheet 3-3: Reconciliation of employee payable, payroll expense 55 Work sheet 3-4: Reconcile between salary expense and collected information from HR Department .59 Worksheet 3-5: Analytics, Reconciliation for account 338 60 Worksheet 3-6: Estimate payroll table by test of detail procedure 69 Worksheet 3-7: Test of detail for payment of salary 70 CHAPTER 1: INTRODUCTION 1.1 Rationale of the research The audit industry is increasingly asserting its role in the world economy in general and Vietnam's economy in particular The development is expressed in both quality and quantity, increasing in quantity is proportional to the substance Besides, the number of people who know about auditing profession, know about auditor's work is getting more and more and their trust in audit reports is also increasing Moreover, the Vietnamese stock market is in the early stages of development and needs more and more honest and objective opinions of the auditors about the financial statements of listed companies in order to be able to operate smoothly With the process of formation and development almost parallel to the process of formation and development of Vietnam auditing industry, Ernst & Young Vietnam Co., Ltd (hereinafter referred to as EY Vietnam) still has, is and will confirm the important role and solid position as the leading person leading the rise of Vietnam's audit industry In an audit of financial statements, the salary cycle and personnel are an indispensable part On the one hand, the salary is economically significant for every business, is included in the cost and accounts for a large part of the total cost of auditing customers Moreover, labor is an important factor in the value of inventories in manufacturing and construction enterprises, if the classification and division of unreasonable labor can have a significant impact on net profit Another reason for the important wage cycle is that the use of inefficient or fraudulent labor will cause waste in the use of enterprise resources On the other hand, salary not only brings economic meaning but also social meaning Whether the size of a large or small customer, a state-owned enterprise, a private enterprise or a foreigninvested enterprise, requires a workforce to conduct business and production activities Whether or not the staff is highly productive depends mainly on how much they are paid for the effort and time they spend That is the salary If they not achieve this income expectation, they will not devote their energy to the work that stagnates in productivity Even strikes are possible Being aware of the importance of the salary cycle and personnel through the internship at Ernst and Young Vietnam Co., Ltd., I would like to select the topic: “The auditing process of payroll and personnel cycle in manufacturing companies implemented by Ernst and Young company.” 1.2 Objectives of study The ultimate goal of the thesis is to Clarify the process of auditing payroll and personnel cycle in ABC company Illustrate the viewpoints on the auditing payroll process 1.3 Scope of the study The thesis will focus purely on the the process of auditing payroll in manufacturing company The data and documents of the ABC company in the study are provided by Ernst& Young company Besides, reliable information sources sush as published books, internal Ernst& Young documents, reports and articles via Vietnam Goverment website or written by professional experts have contributed to the thesis accomplishment 1.4 Structure of the thesis    The thesis consists of three parts:  Chapter 1: The introduction of the thesis  Chapter 2: Theoretical Framework on Audit of Payroll and Personnel cycle in Financial Audits  Chapter 3: The current situation of audit of payroll and personnel cycle in financial statements audit of ABC Company conducted by Deloitte Vietnam Co., Ltd  Chapter 4: Reviews on audit of payroll and personnel cycle in financial statements audit conducted by Ernst and Young Vietnam Vietnam Co., Ltd 1.5 Methodologies and Data A literature review is necessary to build of a system of theoratical framework which aims at providing background audit of payroll and personnel cycle, then with given a typical manufacturing company in this case of ABC, the thesis will show how to Ernst and Young company implements the audit process of payroll and personnel cycle in ABC company Besides, there would be a system of payroll questionnaire set up to summerize opinions from sources of qualified audit people who work at Ernst & Young company such as partners, managers, seniors or staffs 1.6.1 Research method The thesis is going to use Data Collection, Qualitative Analysis Accoring to information provided via website of University of Minnestora (Minnesota), the data collection technique is “Information are collected to have background; literature review to support analysis” This unniversity also recommends some types the Data Collection Techniques, in which employed to server this thesis; they interviews, observation, questionnaires, focus groups Quanlitative method which is a type of scientific research to obtain culturally specific information about the values,opinions, behaviors, and social contexts of particular population (Quanlitative Research Methods: A Data collection' Field Guide, 2005).This method used to collected opinions about the effectiveness of the process of auditing payroll and personnel cycles conducted by Ernst& Young company given by the focus groups’ view The opinions obtained by interview a targeted group including 10 qualified people, they are seven managers and three partners working for Ernsr & Young company During the talk, they gave the opinion about what Ernst & Young achieves or does well in the terms of conducting audit process for auditting payroll and personnel cycle as well as their concerned about the barriers or challeging As a result, their views will be revealed in the Chapter 4: “Reviews about current situation of auditing payroll and payroll deductions in financial statements audit conducted by EY Vietnam Co., Ltd” Basing on the “AQR” which is Annual Quality Review, questionnaire system obtainning previous year, the following questions are designed in the terms of similar manner How comprehensively have Ernst & Young auditor implemented works in preparation step? How to reduce substantive tests, enhance performance of the audit in the process of auditting payroll and personnel cycle? Is there any difficulty in implementing the payroll audit program when applied to a variety of business categories? What are the difficulties and limitations for auditors when conducting salary audits? Besides, This thesis also carries out a typical interview question relating to the process of setting PM & TE conducted by senior auditor which use to provide sufficient information for any audit program The question is “Was the engagement team's determination of planning materiality (PM), tolerable error (TE), and the nominal amount to use in posting audit differences appropriate and correctly documented? Which could be presented in the “2.3.1.5 Mateiality and audit risk section” Findings: steps is answering the question raised in the “1.6.1 research method” (Trường, 2019)  Step 1: At the level of overall financial statement – the planning and materiality determination The determination of performance material (PM) relies on subjective judgment of the chairman or senior (audit team leader) and depends on each customer characteristics as well as the possibility of errors Usually, Pre- tax profit, total asset, equity or net revenue is considered as a bench mark to calculate EY Canvas of Ernst & Young Vietnam company has detailed guideline on how to identify PM Table 1-1: Guideline on how to identify PM of Ernst and Young Company Basement Rate (%) Profit before tax – 10 Clients who have stable profits every year Revenue 0,5 – Business customers that suffer losses or have low profit or high risk Gross profit 1–2 Business customers who lose money or have low profit Equity 1–5 New customers come into operation or audited first year Total asset 0,25 – 0,5 Conditions (Internal EY source) Step 2: At the level of general and administrative expense item – The tolerable errors identification ... cycle in manufacturing companies implemented by Ernst and Young company. ” 1.2 Objectives of study The ultimate goal of the thesis is to Clarify the process of auditing payroll and personnel cycle. .. cycle in ABC company Illustrate the viewpoints on the auditing payroll process 1.3 Scope of the study The thesis will focus purely on the the process of auditing payroll in manufacturing company The. .. DECLARATION I hereby declare that the Graduation Project ? ?The auditing process of payroll and personnel cycle in manufacturing companies implemented by Ernst and Young company? ?? is the results of my own