Completing the audit process of payroll and payroll deductions in audit of financial statements conducted by kpmg company limited

The direction of development and the requirement of completing the auditing process of payroll and payroll deductions in audit of the financial statements at KPMG Co., Ltd.. Principles

Rationale of the study

Currently, with the development of the market economy, the annual Financial Statements (Balance Sheet, Statement of income, Cash Flow statement, ) prepared by businesses have become the focus of interest for various individuals such as: business owners, shareholders, fellow businesses, banks, investors, regulatory agencies, and the general public in society While each stakeholder interested in a company's financial statements approaches it from different perspectives and with distinct purposes, they all require the financial statements to contain highly reliable, truthful, and reasonable information Inaccurate financial information can lead to inappropriate decisions for the users One of the effective measures to mitigate the risk of the information presented in a company's financial statements is to have these statements examined by independent auditors from professional audit firms The independent audit in Vietnam has affirmed its indispensable role in the economy and has become an integral part of the macroeconomic management tool system, actively serving socio-economic development Independent audit activities have become a necessary requirement for the transparency of financial information, serving the interests of enterprises, domestic and foreign investors, the interests of capital owners, creditors, as well as the interests and requirements of the government

KPMG Company Limited is one of the world's four leading companies in the field of auditing and financial consulting Appearing in Vietnam since 1994, KPMG Vietnam auditing company has made great strides and become one of the leading auditing companies in Vietnam

Audit activities include auditing revenue, capital, assets and especially costs Payroll is both income and motivation for workers in production and business, and is also one of the costs that make up product prices; goods; services and is an important lever to improve the production and business efficiency of enterprises In businesses, payroll costs account for a large part of the total costs of the business Therefore, the inaccuracy in payroll costs can significantly impact the production cost, thus affecting

13 the efficiency of the company's operations, leading to the presentation of unreliable and unreasonable information in the company's financial reports, which affects the economic decisions of the users of the information in the financial reports Realizing the meaning and importance of payroll and payroll deductions through the internship at KPMG Co., Ltd, I decided to choose the topic: “ Completing the audit process of payroll and payroll deductions in audit of financial statements conducted by KPMG Company Limited ”

Study overview

There is a significant amount of research in the field of auditing, especially those related to auditing the payroll and personnel cycle in financial statement auditing Regardless of the perspective, it shows that auditing the payroll and personnel cycle is an important factor that significantly affects the audit results of an audit After researching, I have selected several research papers with the same topic as my research topic

Topic: ‘Completing the audit of payroll and payroll deductions in the audit of financial statements performed by Deloitte Vietnam Co., Ltd’ by Ly Thi Hong Loan,

2018 This thesis delves into the current state of payroll auditing practices at Deloitte Vietnam Through a meticulous examination of Deloitte's payroll and payroll deductions auditing process, the author meticulously identifies both the strengths and weaknesses of the existing methodology This in-depth analysis sheds light on the underlying causes of these strengths and weaknesses, enabling a comprehensive understanding of the current auditing framework Building upon this foundation, the author proposes a set of actionable recommendations aimed at refining Deloitte's payroll and payroll deductions auditing process These recommendations are carefully tailored to address the identified shortcomings and leverage the existing strengths, ultimately enhancing the effectiveness and efficiency of Deloitte's payroll and payroll deductions auditing practices Because the author's article has been written for a long time and the continuous development of society, the law has been updated and changed

14 a lot to suit the current economy, so the solution mentioned in the study may not suit solve problems in the current situation

Topic: "Completing the audit of payroll and payroll deductions in the audit of financial statements performed by PWC Vietnam Co., Ltd.," by Nguyen Yen Nhi, 2020 The author presents and analyzes the current state of the audit process for payroll and payroll deductions, highlighting the advantages and disadvantages of the process The steps are implemented relatively strictly, complying with Vietnamese Auditing Standards and International Auditing Standards accepted in Vietnam Right from the planning stage, PwC performs very carefully through observation, interview and preliminary analysis of financial statements to design an audit program that is tailored to the client's situation During the audit execution stage, PwC flexibly applies audit procedures Finally, before issuing the audit results, they will be carefully reviewed and evaluated However, the author also points out some limitations of the audit process at PwC in auditing this item, which is that the assessment of internal control is only performed on paper, making it difficult to assess the strengths and weaknesses of the client In addition, the preliminary analysis procedure cannot cover all the issues that need to be audited However, in terms of recommendations, the author has not proposed recommendations for audited entity, training organizations and students These are all necessary factors to implement the author's proposed solution

Topic: "Completing the audit of payroll and payroll deductions in the audit of financial statements performed by Ernst & Young Vietnam Co., Ltd." by Hoang Thi Ngoc Anh (2022) - Banking Academy, provides a very specific overview of the theoretical basis for auditing the of payroll and payroll deductions item in financial statement audits At the same time, through a study of the actual state of of payroll and payroll deductions auditing at Ernst & Young Vietnam Co., Ltd., the author points out the advantages, disadvantages, and explains the causes, proposing solutions to improve EY's own of payroll and payroll deductions auditing process While the author identifies several limitations in EY Company's audit process, the proposed solutions are general and focus specifically on evaluating the internal control system for clients, without addressing other weaknesses in the process

Overall, the above studies have demonstrated the author's achievements; however, there are still some limitations, such as not being updated with the latest laws and regulations and not providing comprehensive solutions for each limitation, Therefore, I have supplemented and addressed these shortcomings to complete my research with the aim of having a more complete study In addition, since each company has a different audit process, which leads to different strength and weakness, so I have chosen the topic " Completing the audit process of payroll and payroll deductions in audit of financial statements conducted by KPMG Company Limited ”

The objectives of the thesis

The purpose of the study is set as follow:

- Overview of the theoretical basis of payroll and payroll deductions in auditing financial statements and the audit process of payroll and payroll deductions performed by independent auditors

- Learn about policies and regulations on auditing the payroll and payroll deductions conducted by KPMG Co., Ltd

- Find out the current situation of the audit process of the payroll and payroll deductions at KPMG Co., Ltd

- Evaluate and propose solutions for the payroll and payroll deductions audit process performed by KPMG Co., Ltd.

Subjects and scope of study

- Study subjects: Audit process of payroll and payroll deductions in financial statement audits performed by independent auditors

- Scope of research: Audit process of payroll and payroll deductions in financial statement audit by KPMG Co., Ltd

Study questions

The thesis is carried out to answer the following 03 main questions:

- How are the audit procedures for the payroll and payroll deductions designed in the audit of the Financial Statements at KPMG Co., Ltd?

- How are the reality audit procedures for the payroll and payroll deductions designed in the audit of the Financial Statements at KPMG Co., Ltd?

- What solutions help improve the audit procedure for payroll and payroll deductions designed in the audit of the Financial Statements at KPMG Co., Ltd?

Methodology of the study

To complete this thesis, in the research process, I have used the following research methods:

- Document research method: Referencing documents on auditing, accounting and auditing standards, current accounting regulations; using documents and audit files from KPMG Co., Ltd to collect necessary information to complete the study topic

- Dialectical materialism method: Understanding the relationship between theory and practice in the process of auditing payroll and deductions at KPMG Co., Ltd

- Statistical, analytical, and synthesis document method: Statistics of the information and data collected to conduct analysis and evaluation Then the information will be gathered to make objective conclusions, identify strengths and weaknesses, find causes, and propose solutions

- Observation and interview method: Direct observation of the auditing processes at the company's clients during real and direct fieldwork.

Structure of the thesis

Besides the Assurances, Appreciation, Table of Contents, List of tables,

17 acronyms, Conclusion of each chapter and General conclusion0, List of references and appendices, the structure of the graduation thesis consists of three main part is as follows:

Chapter 1: Theoretical base for payroll and payroll deductions audit process of actual payroll and payroll deductions conducted by independent auditor

Chapter 2: The current situation of payroll and payroll deductions audit process in the audit of financial statements conducted by KPMG Co., Ltd

Chapter 3: Recommendation for improving the audit of payroll and payroll deductions in financial statements conducted by KPMG Co., Ltd

THEORETICAL BASE FOR STAFF COST AND AUDIT

Overall about payroll and payroll deductions

1.1.1 Concepts of payroll and payroll deductions

Based on the research object of the thesis, the definition of payroll and payroll deductions is similar to employee benefits in International Accounting Standard 19 (IAS

19) The standard indicates the scope of employee benefits including 04 parts as follows:

- Short-term employee benefits are expected to be paid wholly before 12 months after the end of the annual reporting period in which the employee render the related services for the entity such as:

+ Wages and salaries, social security;

+ Annual leave and sick leave;

+ Profit distribution and bonus; and

+ Non-monetary benefits (such as medical care, housing, cars, and free or subsidized goods or services) to current employees;

- Post-employment benefits, such as:

+ Retirement benefits (e.g pension and lump sum payments in retirement); and

+ Other post-employment benefits, such as life insurance and post- employment medical care;

- Other long-term benefits, such as:

+ Long-term paid leave, such as seniority leave or paid leave for research; + Holidays and other long-term benefits;

+ Long-term disability benefits; and

Up to the time of completing the thesis, Vietnamese Accounting Standards (VAS) still do not have separate standards regulating benefits for employees or payroll

Therefore, I use the scope of employee benefits prescribed by IAS 19 to clarify the definitions of payroll and payroll deductions, and at the same time supplement and adjust it to be consistent with Vietnam's accounting regime and standards The author reclassifies the scope of payroll and payroll deduction as follows:

Salaries, wages, and amounts of a salary nature;

Deductions based on salary: social insurance, health insurance, unemployment insurance, community insurance and personal income tax;

Other benefits for employees are paid by businesses

1.1.1.1 Salaries, wages, and allowances payable to employees

“A salary is an amount the employer pays the employee under an agreement for work performed by the latter Salary equals (=) base salary plus (+) allowances and other additional amounts.” (Article 90 Labor Code 2019)

Based on the way of production and business activities and management level, each enterprise will choose an appropriate salary payment method, harmonizing the common interests of both employers and employees In order to ensure the principle of distribution according to labor and from the actual situation, businesses often apply the following forms of salary calculation:

- Time-based payment shall be made to workers who are subject to this form of payment, based on the working time by month, week, day, and hour as agreed in the employment contract, specifically:

Salary = Actual working time x Salary coefficient

- Piece-rate payment shall be made to workers who are subject to this form of payment, based on the degree of completion, volume and quality of the products created according to the labor norms and unit cost of the products assigned to them

Salary = Guaranteed completed product x Unit price (salary/product)

- Piece-work payment shall be made to workers who are subject to this form of payment, based on the volume, quality of the work and the deadline for work completion

- Wages for overtime work specified in Clause 1 Article 98 of the Labour Code are stipulated as follows:

For a worker who enjoys time-based wage, s/he shall be paid for the overtime work performed beyond the normal working hours required by the employer under Article 104 of the Labor Code Such wage shall be calculated using the following formula:

Wages for overtime work = Actual hourly wage for the current job on a normal working day x At least 150% or 200% or 300% x The number of overtime working hours

Allowances “meant to make up for working conditions, work complications, living conditions, necessity of labor attraction that are not taken into account or not adequately included in the wage corresponding to the tasks or positions on the pay scale” (Clause 1, Article 1, Circular 23/2015/TT-BLĐTBXH) To be specific:

- Making up for working conditions, including arduous, harmful, dangerous works, or particularly arduous, harmful, dangerous works

- Making up for work complications such as work that requires training, professional skills and knowledge, heavy responsibility, affecting other works, requiring long experience, working skills, communications skills, and cooperation

- Making up for living conditions such as work in remote areas, disadvantaged areas with extreme climate, expensive areas with housing difficulties; works that require employees to frequently change the workplace, residence, and other factors that make the employees’ life inconvenient

- Labor attractions such as encouraging workers to new economic areas, new markets; unattractive jobs that lack workers; encouraging workers with high productivity and work quality or able to meet work schedules

Additional payments “are amounts in addition to wage and allowances related to the job or position written in the employment contract Additional payments do not include:bonus prescribed in Article 103 of the Labor Code; payment for mid-shift meals; assistance for employees upon death, marriage of their relatives, employees’ birthday parties, assistance for employees having difficulties from occupational accidents, occupational diseases, other assistance and allowance not related to the job or position written in the employment contract” (Clause 1, Article 1, Circular

1.1.1.2 Payroll deductions and personal income tax

Payroll deductions are amounts that employees must pay for insurance and other support funds from the salary they receive Payroll deductions are usually stipulated in labor laws and related regulations, and are calculated based on the total salary the employee receives each month

Social insurance “means the guarantee to fully or partially offset an employee’s income that is reduced or lost due to his/her sickness, maternity, labor accident, occupational disease, retirement or death, on the basis of his/her contributions to the social insurance fund” (Article 3 Law No 58/2014/QH13)

According to Clause 1, Article 5, Decision 595/QD-BHXH in 2017; Clause 1, Article 57 of the Employment Law 2013; Clause 1, Article 7, Decree 146/2018/ND-CP, every month, enterprises make allowances for the Social Insurance Fund at the rate of 25.5% of the total actual salary payable to employees in the month, of which: 17.5% is included in expenses Enterprise's production and business activities, 8% deducted from employees' salaries

Audit procedures of the payroll cycle and payroll deductions

Basically, the audit process for payroll and payroll deductions items follow the audit process for salary items and payables to employees in the Model Audit Program Guidance Document issued by the Vietnam Association of Certified Public Accountants (VACPA) because the majority of payroll costs are salaries and payroll deductions

1.2.1 The role and objectives of auditing the payroll cycle and payroll deductions

The first goal that the auditor performs according to the instructions is the general inspection goal This objective requires that auditors when performing audits of payroll and payroll deductions must collect sufficient and reasonable audit evidence to confirm the truthfulness and reasonableness of the items presented in the financial statements All information considered material to the payroll cycle must be presented in units consistent with current accounting standards and regulations From the keyword audit total target, the auditor's tool can collect more detailed audit targets, making it easier for the auditor to determine the audit evidence that needs to be collected, including:

37 existing targets, targets completeness, target rights and obligations, presentation of target pricing and target classification

Existence objective: These objective demands that payroll transactions are recorded in the books when they truly occur, supported by documents proving this existence, ensuring the actual presence of expenses, unpaid salaries, and accrued liabilities

Completeness Objective: The completeness objective means that all payroll transactions that have occurred must be recorded in the books If a company does not fully reflect a payroll payment to an employee, then payroll expenses and payables, as well as related assets such as cash and bank deposits, will be misrepresented At the same time, understating salaries will reduce costs and overstate profits compared to the company's actual financial position

Rights and Obligations Objective: Payroll relates to amounts payable to employees and state agencies Rights and obligations for the cycle mean that the entity is obligated to pay salaries and related deductions in accordance with the current financial and accounting regulations However, for payroll transactions, the rights and obligations objective is usually not very important If the company does not comply with the regulations, the employees will no longer work, and the state agencies will have issued reminders

Measurement and Valuation Objective: For payroll transactions and related balances, this objective means that the values recorded for valid payroll transactions are correct The value of payroll transactions can be due to errors in salary calculation, book transfer, incorrect salary calculation, etc Usually, measurement and valuation errors are mistakes, rather than fraud All measurement and valuation errors in payroll transactions will lead to an overstatement or understatement of the actual payroll expenses payable to employees and other related assets The measurement and valuation objective is also important in preparing reports on taxes payable and other payroll-related payables To avoid risks of errors in calculating taxes and payables related to salaries, organizations often assign an independent employee to independently review the calculation and preparation of reports

Classification and presentation objective: Verify whether salaries and outstanding payables at the end of the period are presented on the financial statements in accordance with the provisions of the accounting regime and consistent with the data on the unit's accounting books

1.2.2 Audit process of salary cycle and payroll deductions

In financial statement auditing, gathering sufficient audit evidence is crucial to provide a basis for the auditor's conclusion It ensures the truthfulness and fairness of the information in the financial statements while ensuring the effectiveness, efficiency, and validity of each audit Auditors need to develop specific procedures for each audit Typically, each audit procedure is divided into 3 main steps as follows:

(1) Survey and accept new customers

In the audit process, the examination and acceptance of new clients start with the audit firm receiving a request for an audit from a potential client After receiving the audit invitation, the company will proceed to find out the most general information about the client to determine whether to accept the client or not Representatives of the audit firm will meet the client company's Board of Directors and gather the following basic information:

- Customer's demand for audit services: Each potential client will have varying needs for audit services, including services such as issuing audit reports, management letters, and financial statement review services for audit minutes, interim financial statement audits, and more

- Gathering general information about the client company, such as the business type, business license, address, legal documentation, and any industry-specific regulations relevant to the client's business operations, is crucial

- Organizational structure and operations: Operating locations including branches and subsidiaries, organizational management structure, workforce information during the audit year - any changes in human resources (total number of employees, personnel in leadership positions, the board of directors, management team)

- Business situation: the auditor needs to understand the client’s primary business field and the potential inherent risks associated with the client’s industry This includes Examining the client’s accounting system and internal control system: such as the organization of the client's accounting department, the accounting procedures in place, the process of document flow and storage, and the management's attitude towards the existence of the internal control system are all factors that the auditor needs to assess This evaluation will help the auditor form an overall assessment of the control risks within the unit and the integrity of the client's management

- Regarding the audit of payroll and payroll deductions: The auditor needs to pay attention to the salary policies, recruitment and labor utilization policies, employment contracts, employee welfare policies, and accounting estimates for bonuses and other salary-related aspects when auditing payroll and related deductions Based on this information, the auditor conducts preliminary analysis and assessment to evaluate their impact on the payroll and related deductions, thus identifying the key issues within the audited unit and selecting the necessary audit procedures

After gaining initial insights into the client, the auditor will conclude whether to accept or reject the client If the client is accepted, the next step involves planning the audit team and determining the audit fee before finalizing the audit engagement agreement

(2) Assigning suitable auditors and signing the audit contract

THE CURRENT SITUATION OF PAYROLL AND PAYROLL

General overview of KPMG Company Limited

2.1.1 The process of formation and development

KPMG International Limited, also known as “KPMG International” (Klynveld Peat Marwick Goerdeler) is one of the largest auditing firms in the world and is in the industry's BIG4 along with Deloitte, Ernst & Young (EY) and PricewaterhouseCoopers (PwC) Through many mergers since the 1890s, KPMG International Limited was officially established in 1987 in the UK, headquartered in Amstelveen, Netherlands KPMG International does not provide professional services to clients but only acts as a coordinator for the common interests of member firms Member companies KPMG Limited provide Audit, Consulting, and Tax service KPMG firms operate in 143 countries and territories, and in FY23, collectively employed more than 270,000 partners and people, serving the needs of business, governments, public-sector agencies, not-for-profits and through KPMG firms' audit and assurance practices, the capital markets

Established in 1994, the company has more than 28 years of experience, with more than 8,000 customers who are multinational enterprises, state-owned and non- state enterprises, private enterprises, start-up enterprises and businesses Family business KPMG supports clients with a multi-dimensional approach, combined with experience and in-depth industry knowledge to overcome challenges and be ready to seize opportunities in 5 main activities of the business process, including Auditing, Operational Consulting, Business Consulting, Tax and Legal Consulting With this approach, multi-disciplinary approach and in-depth knowledge, KPMG's customers range from multinational enterprises, state-owned enterprises to private enterprises, family businesses, Start-up enterprises and even organizations Nonprofit KPMG also

53 provides services to most current business sectors such as finance and banking, chemicals, energy, consumer goods, health care, education, industrial production, infrastructure floors, retail, industry, real estate, transport and logistics, public sector,

Full name: KPMG COMPANY LIMITED

International transaction name: KPMG Limited

Head office: 46th floor, Keangnam Tower, Hanoi Landmark Tower, 72-storey building, Lot E6, Pham Hung Street, Cau Giay New Urban Area, Me Tri, Nam Tu Liem, Hanoi

Email: dpp-vn@kpmg.com.vn

Branch address: 10th Floor, Sunwah Building, 115 Nguyen Hue, District 1, Ho

President and General Director: Mr Warrick Antony Cleine

Website: http://kpmg.com.vn

Branch address: Lot D3, 5th floor, Indochina Riverside Building, 74 Bach

Dang, Hai Chau I Ward, Hai Chau District, Da Nang

KPMG Vietnam is a member of the global KPMG network, as a result, the business possesses certain benefits to reach its position as the leading financial services provider in Vietnam The enterprise has received many prestigious awards from the State Government of Vietnam The 2021 Golden Dragon Award by Vietnam Economic Times that recognizes KPMG's effective operations and significant contribution to the development of our country In addition, KPMG Vietnam is proud to be the best place to work in Asia in 2020 - 2021 voted by Asia Human Resources Magazine and in the top 50 most attractive employers for Vietnamese students in 2020

KPMG Vietnam's recent 3-year Transparency Report shows that the company is operating effectively and responsibly Revenue, profits, and employee numbers have all exhibited a trajectory of steady growth This commitment to responsible business practices is further underscored by KPMG Vietnam's dedication to sustainable development and fostering a positive impact within the community Their focus on environmental, social, and governance initiatives demonstrates a clear understanding of the importance of creating shared value for all stakeholders The company ends its fiscal year on September 30 every year

Table 2-1.Financial information of KPMG Limited Company during 2021-2023

Revenue from financial statement audit services for entities with public interest

Taxes payable to the State Budget 19.357 19.187 16.252 -170 -1 -2.935 -18

Provision for occupational risk reserves - - - - - - -

( Source: Transparency Report KPMG in Vietnam 2021,2022,2023)

Although the revenue growth is not explosive, it shows the stability and sustainability of KPMG Vietnam's business operations Audit services continue to be the cornerstone of their business, generating the largest portion of their revenue Tax and advisory services also play a vital role, contributing significantly to their overall success

KPMG Vietnam's profit after tax decreased by 34% in the period 2021-2022, from VND 2,112 billion to VND 1,441 billion However, by 2023, profit after tax will increase by 53% compared to 2022, reaching VND 2,199 billion The 2022 decline could be attributed to a confluence of factors, such as the lingering effects of the COVID-19 pandemic, fluctuations in the macroeconomic landscape, or adjustments within KPMG Vietnam's business structure However, 2023 paints a much brighter picture The post-pandemic economic recovery seems to have played a significant role, coupled with KPMG Vietnam's strategic initiatives to restructure and innovate its operations This impressive growth momentum positions the company for a promising future

Overall, KPMG Vietnam has maintained stable revenue growth in the period 2021-2023 This shows the company's positive development potential in the future

2.1.2 Functions, responsibilities, and business areas

KPMG Vietnam provides a wide range of services, including audit, tax, financial advisory, and legal advisory services Audit and tax advisory are KPMG's strengths in the Vietnamese market With the reputation of an international company and deep understanding of Vietnamese laws, KPMG's services are always a symbol of value and trust Currently, KPMG Vietnam is operating in the following main service areas:

- Audit: KPMG provides independent audit services designed to help clients enhance the reliability and accuracy of financial information This information will be used by investors, creditors, and other stakeholders

- Business Advisory: Including Digital Transformation, Risk Management, Financial Performance Management, Customer Strategy, Operations Strategy, People and Change, Corporate Transformation

- Transaction Advisory: Providing clients with a complete and comprehensive service from the strategy building stage to implementation and achieving practical results KPMG always controls quality and reliability, not only for future transactions but also for long-term cooperation in the future

- Tax and Legal Advisory: Providing integrated services including audit, tax, advisory functions, ensuring a deep understanding of client businesses on key issues

- Support for businesses: Including countries in the region such as China, Taiwan, Hong Kong, Japan, Korea, Thailand

- International Financial Reporting Standards (IFRS): KPMG is working with organizations around the world to help them address the complex challenges arising from the adoption of IFRS, such as:

+ How will IFRS affect the reported operating performance of the business and how will the results of this change be effectively communicated internally and in the market?

+ What are the potential benefits of adopting IFRS? And how will these benefits be realized?

+ What experience and resources does a company need to successfully transition to IFRS?

+ How should organizations manage the transition to IFRS?

- Due Diligence Advisory: Including Financial Due Diligence, Accounting Advisory Due Diligence, Forensic/Integrity Due Diligence, Information Technology Due Diligence, Human Resources Due Diligence, Tax Due Diligence, Commercial Due Diligence, Legal Due Diligence, Operational Due Diligence, Environmental, Social and Governance Standards Due Diligence

- KPMG On Demand: Including bite-sized courses and onsite assistance to help solve problems in the company and optimize business performance

The management structure is a crucial factor in determining the success of

KPMG's operations KPMG's organizational model is applied uniformly worldwide, with necessary adjustments to suit the specific conditions of each country and territory The model's specific features are as follows:

Diagram 2-1 Organizational Management Model of KPMG Co., Ltd

According to the organizational chart, the functions of the Board of Directors and departments are assigned as follows:

Board of Directors: The Chairman and CEO, Mr Warrick Cleine, is the head The Executive Director holds the highest management authority over all company activities and also serves as the legal representative responsible for all legal obligations concerning those activities

Partners are responsible for specific activities and have the task of supporting the Director in strategic planning, overseeing sub-departments, reviewing and approving relevant operational documents (when authorized)

The members of the Board of Directors are also major shareholders They are directly involved in assessing audit risks, making decisions on audit contracts, conducting final reviews for all audit files, and representing the company to sign and issue Audit Reports and Management Letters to clients

Administrative department: It consists of three divisions: Finance Department, Accounting Department, and IT Department The Administrative Department is responsible for managing the financial accounting of the company; organizing salary

59 payments for employees; managing correspondence; ensuring asset security and personal safety for employees; providing forms, books, vouchers, and supplies for the entire company The Administrative Department also has tasks such as supplementing and amending financial regulations of the company; developing detailed financial budget plans; actively coordinating with business departments to propose solutions to financial matters for the Board of Directors; carrying out internal network administration tasks The IT department provides computers, hardware/software systems to ensure efficient operation

Business Division: Consists of three main departments: Audit Department, Advisory Department, and Tax Department Each provides specialized services:

The Audit Department is divided into four smaller departments:

Department 1,3,4 offer audit services to businesses in standard industries like chemicals, energy, consumer goods, imports, and exports, etc

Department 2 or the Financial Services department, specializes in providing audit services to banks and other financial institutions

The Tax Department provides tax advisory services to enhance tax and financial management for each client

The Advisory Department offers financial advisory, corporate advisory, risk advisory, and human resources consulting services to identify suitable candidates for various positions, especially in business management, IT management, and employee development for businesses

Diagram 2-2 Human resource organization model of the Audit Department at

The Audit Partner is responsible for overall management of the audit activities, procurement, and maintenance of service contracts with clients

The Audit Director is responsible for overseeing the audit operations of the company, providing guidance, and reviewing the implementation of audit tasks by subordinate staff, as well as conducting reviews of audit reports

The Audit Senior Manager and Audit Manager are responsible for planning audits, directing the auditing process, and monitoring the progress of work by lower- level staff

The Assistant Manager and Senior Audit Team Leader are responsible for

Financial statement audit process by KPMG Co., Ltd

(1) Client Acceptance and Engagement Risk Assessment

The most important step in the audit planning phase is the process of obtaining client information

For new clients who are using financial statement audit services for the first time (have not conducted a financial statement audit from the time of company establishment to the time of announcing the use of financial statement audit services): To obtain information about the client's business characteristics, the auditor can use information from the mass media, research through specialized documents, and review client information from related parties such as banks, suppliers, customers, etc

For new clients who have been audited by other firms: In addition to the information that the auditor can find out on their own, as for clients who are using the financial statement audit service for the first time, they can also refer to the information from the predecessor auditor (if there is approval from the client) This is a very useful source of information that can help the auditor to make a preliminary assessment of the client's financial situation, internal control system, and other important information At the same time, the auditor must also be aware of why the client changed audit firms

For existing clients: The company has basic information about the client (understanding of the business field, internal control system, related parties, etc.) However, the auditor must still collect additional information related to the client's changes in the financial statement audit year because these changes can affect the scope of the audit

(2) Audit Engagement and Team Selection

After conducting the client acceptance and risk assessment, the two parties will sign an engagement contract KPMG will then select the audit team members and review board members to ensure that they have the necessary professional competence and legal capacity to comply with the ethical principles of the profession

The audit contract always includes a clause specifying the audit team The team members will include the Partners who signed the contract with the client, the person

66 who is responsible for the quality control of the audit and who will sign the audit report The next step is to select the remaining members of the audit team, including: 1 Audit Manager, 1 Audit Senior, 1 Audit Assistant 2 and 1 Audit Assistant 1 A team of 5 people at different levels is considered to be a basic audit team with full members at KPMG

Each member of the audit team must ensure the auditor's independence Similar to other audit firms, KPMG strictly controls the independence of its employees In addition, to ensure the confidentiality of the audit, KPMG auditors are required to use company laptops when working and many documents are stored in the KCw system which can only be accessed by team members using company computers For example, with payroll and payroll deductions, if you want to find out about this item in the predecessor auditor's working papers, you must use the company computer to search on KCw

Besides independence, all team members must meet the professional requirements The roles and responsibilities of the team members are different, depending on their professional competence, level and, most importantly, the risk of the part that the member is responsible for.Staff 2 in the KPMG audit team are typically assigned tasks with low-risk parts due to their limited experience For high-risk parts, the person in charge is usually a Staff 1 in the team or, in some cases, someone in the team who has a deep understanding of the business, and the high-risk part may also be assigned to take charge The higher levels will be responsible for checking, reviewing, and evaluating all the work done by their subordinates

(3) Understanding the Customer and Operating Environment

After signing an audit contract with the client, Auditors will proceed to collect audit reports to understand the client's business activities and operating environment through site visits, observations, or interviews with relevant individuals to gather necessary information including General Business Environment, industry-specific Issues and Trends, legal factors, Key Business Activities and Financial Situation

Each industry has different operating environments, influenced, and impacted by the economy and various external factors To collect the above information, the auditor

67 can combine direct observation of the payroll cycle (recruitment, document storage, timekeeping, payroll, salary payment, etc.), interviewing the BOD, responsible employees, and collecting documents from relevant departments and divisions

For payroll and related deductions, the information that KPMG auditors will focus on collecting includes:

- Information on the client's legal obligations: Business registration certificate, regulations, policies, and minutes of BOD and Shareholders' meetings of the client; legal documents and books such as: labor contracts, payroll, documents related to salary payment or social insurance participation, social insurance notifications, etc

- Information on the client's business industry: KPMG determines the overall economic situation in the host country, then goes on to explore the economic potential of the business area in which the client company is registered From there, find out the specific aspects of the enterprise such as: organizational structure, production line, capital structure, etc Finding out this information will help the auditor determine the proportion of payroll and related deductions to the total assets of the client, and from there determine whether the impact of this item on the entire financial statement is material or not

(4) Understanding the client's accounting policies and payroll cycle

While most of KPMG's clients follow Accounting Circular 200 issued by the Ministry of Finance, a few subsidiaries and branches may use IFRS due to requirements from their foreign parent companies This is a critical step in the audit process This information helps the auditor to identify the risks of material misstatement in the financial statements, design and perform audit procedures to respond to those risks and evaluate the results of the audit procedures and draw conclusions about the fairness of the financial statements

Therefore, auditors need to thoroughly understand the client's accounting policies and payroll cycle There are a number of different methods that can be used to gather information about the client's accounting policies and payroll cycle, such as: Observing the client's operations and interviewing key personnel can provide valuable

68 insights into the client's accounting policies and payroll cycle, interviewing key personnel, such as the accounting manager, can provide the auditor with a detailed understanding of the client's accounting policies and payroll cycle and reviewing the client's accounting records and other documents can provide the auditor with evidence of the client's accounting policies and payroll cycle

Understanding these aspects plays a critical role in developing the subsequent audit strategy It helps determine the company's size, financial position, and how these are reflected and summarized in the financial statements

The auditor will study the client's ICS The auditor will study the components of the ICS according to KPMG's sample audit program, including Control Environment, Risk Assessment Process, and Monitoring of Control Activities

First, the auditor will study the internal control system of the entity using various methods, but mainly the following:

- Based on previous audit experience at the client (if any)

- Interviewing managers, supervisors, and other employees

- Observing control activities and their operation in practice

After studying the entity's ICS, the auditor will document the information collected The documentation is usually done and completed in the form of a narrative table or a questionnaire on ICS

For payroll and payroll deductions, the auditor identifies potential errors and key control procedures:

- Approval process: From recruitment to payroll payment, there must be clear regulations and approval signatures on documents such as payroll spreadsheets, payment requests, employment contracts, timesheets, etc

- Bookkeeping: Costing and bookkeeping must be done promptly and in full

- Payment of salaries and related expenses: There must be complete documentation and signatures of the employees receiving the salary on the payroll

- Division of responsibilities: Responsibilities must be clearly divided For example, the HR department must be separate from the calculation of salaries, bonuses, payroll preparation, salary payment, bonuses, etc

The reality of the audit of payroll and payroll deductions in financial

Due to client confidentiality constraints in the audit contract, the name of the Audited Entity in the dissertation will be referred to as Company ABC However, the financial data and information of Company ABC for the financial year ended on December 31, 2023 are entirely accurate

Basic information about ABC Company is as follows:

Type of enterprise: Non-State Limited Liability Company

Headquarters: Chau Son Industrial Park - Le Hong Phong Ward - Phu Ly City -

Business lines: Producing and trading animal feed products and raw materials The Company's normal production and business cycle is within 12 months

As of December 31, 2023, the Company has 181 employees including 3 foreign workers (January 1, 2022: 179 employees)

Financial statements are presented in the currency unit of Vietnam Dong (VND), complying with the Corporate Accounting Regime according to Circular 200/2014/TT- BTC and Vietnamese Accounting Standards issued by the Ministry of Finance

(1) Review and Acceptance of Customer Company ABC

Company ABC is a 100% foreign-invested enterprise It is a part of the multinational conglomerate ABC Management Holding Limited with over 60 years of

77 experience in producing animal feed, conducting business in more than 20 countries and territories, generating annual revenues in the billions of USD In Vietnam, Company ABC currently operates 4 modern factories specializing in the production of animal feed products The company has established factories in Ha Nam, Thanh Hoa, Nghe An and Binh Duong, focusing on the production and sales of animal feed products and raw materials

This is the third consecutive year that KPMG Vietnam has audited Company ABC KPMG Vietnam has observed that ABC, being a company with 100% foreign investment, has a tightly established internal control system, with all accounting policies being correctly implemented Moreover, in previous audit periods, no significant irregularities were detected Therefore, the company has accepted the audit of the financial statements for the year ending December 31, 2023, for Company ABC

(2) Audit contract extension and audit team selection

After accepting the audit engagement, the Partners directly discuss the terms of the audit contract with the client Once both parties agree, KPMG Vietnam drafts the contract based on the standard company audit contract template This contract stipulates that KPMG will audit the entire financial statements of Company ABC

Depending on the scale, type, and complexity of the client, the company selects auditors to participate in the audit As Company ABC is an existing client, KPMG prioritizes selecting auditors and audit assistants who have experience auditing in previous years, specifically as follows:

Audit Partner: Mr L.V.H (Certificate of registration for auditing practice valid from January 01, 2023 to December 31, 2027)

Audit Assistants: Ms N.T.T., Mr N.T.T., Ms D.N.A

Additionally, the independent audit quality control reviewer not part of the audit team is Mr D.X.L (Certificate of registration for auditing practice valid from January

Since the business field of Company ABC are not beyond the expertise of the

78 audit team, KPMG and the client mutually agreed not to bring in additional consulting experts into the audit team

(3) Understanding the client and the operating environment

According to the audit files kept at KPMG for company ABC, the company's main business is the production of animal feed, of which 65% is feed for pigs, 35% is for poultry and other livestock Company ABC constantly updates and upgrades its equipment and production technology to the most advanced in the world to create high- quality and stable feed products

This year, customers focus on expanding the pet food segment to the market Therefore, the increase in labor costs in the petfood segment leads to an increase in labor costs for the whole year

Regarding the payroll and personnel cycle, the company also issued a salary regulation approved by the General Director for the calculation of salary, bonus and payment of salary for employees in the company, which was collected by the auditor and kept in the audit files of previous years at KPMG The salary regulation specifies that the salary fund in the company is formed from the salary fund deducted from the production and business cost, the salary fund deducted from the project management cost or other salary funds according to state regulations

All employees are paid through bank accounts, and salaries are typically disbursed once at the beginning of the month (usually on the 10th), thus the risk of late salary payment is very likely to occur During the process of examining labor contracts and salary payments, auditors will focus on verifying the timeliness of wage payments

The form of salary payment for employees at the company is time-based salary The form of time-based salary is assigned to the payroll accountant in charge of salary calculation

(4) Understanding the Accounting policies and Internal control system for payroll and payroll deductions

With a focus on auditing the payroll and payroll deductions, the auditor focuses on some characteristics of the accounting and internal control system (ICS) of Company ABC for the payroll and payroll deductions

Regarding the accounting cycle, Company ABC complies with the accounting regime under Circular 200 of the Ministry of Finance; deduct and pay social insurance contributions and personal income tax in accordance with regulations

As Company ABC is an existing client of KPMG, documents, vouchers, and texts related to ICS have been collected and archived over the years The audit team leader in charge of the following year will collect additional documents to serve the assessment of the effectiveness of the ICS measures that the client has changed during the year and reassess the ICS measures that the client has not changed

Using techniques such as interviews, observation of practical application, and document research, the auditor summarizes the ICS process for the company's payroll and personnel cycle These summaries are included in the regular working file of client Company ABC, below are some excerpts of information related to the ICS payroll and personnel cycle of Company ABC as follows:

- Recruitment Policy of Company ABC

When the company has a need for recruitment, the Human Resources department will carry out the following procedures:

+ Recruitment announcement: The announcement can be made through various channels such as the company's website, social media, ect

+ Receiving applications: Candidates can submit their applications directly to the company, via email, or through the company's recruitment portal

+ Checking qualifications: The Human Resources department will review the application files and assess based on criteria such as professional knowledge, competence, and moral character

+ Interview: Selected candidates will be interviewed in person to assess their ability and suitability for the position

After completing the above steps, the company will decide to recruit the suitable candidate New employees admitted to the company will attend a training course within

1 month and undergo a 2-month probationary period After the probationary period, based on their work performance, the candidates will be signed an official employment contract

Assessment of the reality of the payroll and payroll deductions audit process

KPMG Vietnam's operational advantages stem from being a member of KPMG International, with a long history of auditing in countries with well-developed auditing practices KPMG Vietnam inherits policies, documents, and systems from KPMG

International that have been successfully built at the parent company The audit quality control policy at KPMG is quite comprehensive and detailed, not only complying with Vietnamese auditing standards but also meeting international standards The globally unified audit program makes it easier for employees to perform audits Besides, KPMG always invests in advanced technology to enhance the efficiency and accuracy of the audit process These advantages help KPMG achieve high performance and reliable quality in the audit process, which is the foundation for their success in this field

Regarding reviewing and accepting clients: KPMG prioritizes maintaining existing clients while proactively reaching out and bidding for audits of new clients KPMG's client acceptance procedures are streamlined and straightforward, focusing on contract risk assessment to avoid wasting time and inconvenience for clients As a result, KPMG maintains a relatively large client base (second among the top 4 audit firms in Vietnam in terms of number of public interest clients)

Regarding gathering background information and understanding internal controls: This step is usually performed by audit team leaders These individuals have many years of experience, so the information collected is highly accurate and reliable This information is of paramount importance In the case of the client company, information about the industry helped the auditor choose different audit methods for the payroll and personnel cycle This is highly effective because the auditors, who have a very short working time with the client (about 1 week per client), can get an overview of the market, competitors, new regulations applicable to the client, and accounting information such as accounting policies applied, book entry and transfer forms, fiscal year, etc., which greatly assists the auditors in their work KPMG auditors always recognize the importance of understanding the cycle they are working on Understanding the policies on labor recruitment, contract termination, salary payment, leave allowance provision, etc., is a powerful tool for auditors to understand the client's operations and use estimation models to proceed

The audit team's arrangement to ensure stability for the audit work The audit team is selected with highly qualified, competent, and capable individuals with high

94 teamwork ability The audit team usually consists of 4-6 people depending on the size of the client company, including a team leader who is the main auditor with at least 3 to 5 years of experience at the company For existing clients, the team leader of this year's audit team is usually involved in the previous year's audit This not only ensures that the audit team has certain knowledge of the business situation and financial information of the client, including the organizational structure and working methods, and grasps the potential risks, but also ensures the development, inheritance and training of new auditors by allowing auditors to learn a lot from leaders during the work process Specifically, in the audit firm ABC conducted in the essay, the audit team leader conducted the audit of company ABC in 2021 and 2022 This was a big plus for the planning phase at KPMG

For preliminary analytical procedures: Analytical procedures are performed from the planning stage of each audit and are a mandatory procedure in all audits For example, with the researched client ABC Company, the auditor performs a preliminary trend analysis of the indicators and account balances related to the payroll and payroll deductions, as well as the entire financial statements This process helps the auditor to have an overview of the audit area, thereby effectively directing the work to be done

Audit risk assessment and materiality level: KPMG provides clear and detailed instructions for auditors to determine the AR level, select the appropriate calculation basis and percentage to determine materiality levels and tolerable error thresholds for each client KPMG's guidance is highly applicable and considers most industries and factors that cause or increase client AR in Vietnam Therefore, auditors need to have a comprehensive and in-depth understanding of the client to choose the appropriate calculation bases

Drafting the audit program: At KPMG Vietnam, this step is performed in the following sequence: planning control tests, analytical procedures, and detailed audit procedures When designing the audit program for the payroll and payroll deductions, auditors always follow KPMG's Audit Manual, Vietnamese Accounting and Auditing Standards, and International Standards recognized in Vietnam Auditors are also

95 flexible in applying relevant documents and circulars on necessary issues related to the audit

Designing the audit program based on the KCw audit platform: The KCw audit platform helps auditors save significant time as the KCw platform provides pre- designed audit program templates for each audit cycle and type of business Auditors only need to adjust the program templates to suit the specific characteristics of the client, saving time compared to building the program from scratch For example, for the payroll and payroll deductions, auditors can use the template available for this cycle, then add the necessary audit procedures to test the specific risks of the client Furthermore, the KCw audit platform stores audit documents on the cloud, extending the storage time without burdening the capacity and memory of audit support devices

For regular clients, KPMG typically conducts two audits: the interim audit and final audit The interim audit focuses on reviewing control tests and basic substantive testing, while the final audit updates the control procedures and performs primarily substantive testing based on the plan This approach ensures that audit work is not concentrated at the year-end, improving audit quality

The audit cycle is divided into multiple sections, with tasks being allocated to the audit team in the most reasonable manner Furthermore, the audit team regularly exchanges information and compares data, assisting each other to ensure timely completion of the audit work

The use of techniques to collect evidence is highly flexible Although the pre- established steps are followed, auditors can update, supplement, or remove unnecessary procedures based on the specific characteristics of the operations and control Throughout the audit process, auditors maintain a cautious attitude to identify errors and enhance audit quality

Maximum utilization of technology is integrated into all stages of an audit Since

2022, KPMG has transitioned from using the eAudit audit software and the IDEA sampling software to the KCw intelligent audit platform, which integrates sample

96 selection, saving auditors time and eliminating the need to transfer information between two software programs In addition, each index and audit procedure on KCw is directly linked to the corresponding guidance in KAEG – the audit implementation guide developed by KPMG International based on ISA, allowing auditors to easily access and comply with the audit standards both domestically and internationally Auditors can also easily monitor the team's progress, from designing audit procedures to presenting audit results and risk assessment Therefore, working with pre-programmed software not only maximizes the detection of client fraud and errors but also increases the accuracy of the audit work, saving time and other resources

Furthermore, all tasks are reviewed by higher-level auditors, demonstrating excellent quality control The feedback from senior auditors helps lower-level auditors make necessary adjustments and improvements to work papers, ensuring the highest accuracy These are valuable learning experiences for the audit team, leading to their continuous growth in knowledge and skills after each audit season The payroll cycle is particularly challenging for beginners; however, with excellent teamwork spirit, the auditors at KPMG Vietnam consistently complete their assigned tasks well and on time

The audit process of KPMG is tightly designed and strictly adhered to Audit team members are self-aware and proactively perform self-checks and support each other A new feature in KPMG's audit process is the establishment of the EQC, an independent committee set up by KPMG to ensure the quality of audit services The EQC comprises senior members from the Ranging from Senior Audit Managers to Deputy General Directors EQC members do not directly participate in audits, ensuring objectivity in quality assessment Their responsibilities include organizing meetings to evaluate the quality of audits, providing guidance or warnings to the audit team when necessary, generalizing issues from a specific audit into a common case and providing a satisfactory solution, and sharing solutions with all audit teams This serves as both necessary support and stringent evaluation to ensure maximum audit quality

RECOMMENDATION FOR IMPROVING THE AUDIT OF

The direction of development of KPMG Co., Ltd

The global economy is currently facing many fluctuations, especially with the ongoing conflicts in many places; the global supply chain of accessories and exports is still disrupted; major countries are increasingly strengthening protectionist measures all of which have greatly affected the business situation of many enterprises worldwide

In this context, Vietnam's financial market is also strongly affected, and investors are finding it difficult to make investment and business decisions Under such circumstances, each company must strive to improve and develop itself, and this development process cannot be without the help of professional consultants

As a leading company in the field of auditing both internationally and in Vietnam, since its inception in Vietnam in 1994, KPMG Vietnam has continuously grown in both scale of operation and quality of service provided However, in order to stand firm and expand further in the market, maintain its image and reputation with customers; especially in the context of Vietnam's economy is developing strongly, domestic auditing companies are growing stronger and gaining the trust of a large number of customers, then improving the quality of audit is extremely important

Recognizing this, KPMG has set 3 fundamental goals:

(1) Widen the range of services

KPMG in Vietnam is implementing a strategy to expand into new areas and diversify services to meet the growing market demand and strengthen the company's leading position in the audit, consulting, and tax sectors

Here are some new areas that KPMG Vietnam is focusing on developing:

- Digital Transformation Consulting: Assisting businesses in transitioning to digital business models and applying technology to management and operational activities

- Risk Management Consulting: Helping businesses assess, manage, and mitigate risks in their operations

- Legal Consulting: Providing legal consulting services to businesses in areas such as investment law, corporate law, labor law, etc

- International Tax Advisory Services: Supporting businesses in complying with international tax regulations and optimizing the use of capital

- Internal Audit Services: Assisting businesses in improving operational efficiency and internal control

In addition, KPMG Vietnam is also diversifying its services in traditional areas such as:

- Audit: Providing financial statement audit, internal audit, tax audit services, etc

- Tax Consulting: Providing consulting services on corporate income tax, personal income tax, value-added tax, etc

- Financial Advisory: Supporting businesses in raising capital, mergers & acquisitions, and corporate restructuring, etc

With its expansion and diversification strategy, KPMG Vietnam is committed to providing clients with the most comprehensive and effective solutions to meet the growing market demand

(1) Expanding the Network of Operations

KPMG Vietnam plans to open additional offices in major cities and provinces across the country to reach clients more closely and improve operational efficiency Expanding the office network will help KPMG Vietnam:

- Reach clients more closely: Clients can access KPMG Vietnam's services more easily, especially those in cities and provinces outside of Hanoi and Ho Chi Minh City

- Improve operational efficiency: KPMG Vietnam can serve clients better and more efficiently by being present in areas with many potential clients

- Attract and retain talent: KPMG Vietnam can attract and retain talent by offering more development opportunities for employees

KPMG Vietnam is strengthening its cooperation with other auditing, consulting, and law firms in Vietnam and abroad to expand its service network and enhance its professional expertise Cooperating with other companies will help KPMG Vietnam:

- Expand the service network: KPMG Vietnam can provide clients with more services through cooperation with other companies

- Enhance professional expertise: KPMG Vietnam can learn from the experience and knowledge of other companies to improve its professional expertise

- Access new markets: KPMG Vietnam can access new markets by cooperating with companies with extensive networks

Going hand in hand with its expansion, KPMG always prioritizes quality: Attracting high-quality human resources: KPMG has a golden opportunity to attract top talent through strategic and appealing recruitment programs These programs can address the need for high-quality auditors during busy seasons By bringing in more skilled professionals, the workload on individual auditors can be lessened, leading to a boost in overall productivity A strong recruitment strategy will not only fill staffing needs but also enhance KPMG's image and culture within the labor and business markets Building a reputation for having a talented workforce inspires trust among potential hires, current employees, and future partners

Beyond recruitment, KPMG should invest in ongoing development for its staff This includes specialized training for new employees and regular courses to update the knowledge and soft skills of existing staff Professionalism and ethics are paramount, and KPMG should prioritize these aspects along with robust control measures Additionally, offering competitive benefits programs is crucial considering the demanding nature of the auditing profession

In addition, KPMG also focuses on developing technology to improve quality, such as:

KPMG Clara Workflow: This software streamlines the audit process by providing an integrated platform for audit planning, data collection, execution, and reporting It improves efficiency, reduces errors, and allows auditors to focus on complex areas

Artificial Intelligence (AI): AI automates routine tasks, identifies potential risks in financial data, and generates insightful audit recommendations This frees up auditors for more strategic analysis and helps catch potential issues early

Big Data: KPMG utilizes big data analytics to analyze vast amounts of financial information This allows for a more comprehensive understanding of a company's financial health, risk exposure, and potential areas for improvement

Blockchain: KPMG explores using blockchain technology to enhance the security and transparency of financial records This can improve trust in financial reporting and streamline data verification processes.

The necessary of completing the Audit process of payroll and payroll

Building an effective audit process is crucial to the existence, success, and development of an audit firm It helps to:

- Minimize audit costs: By streamlining the audit process and reducing unnecessary work, the audit firm can save both time and money

- Reduce audit risk: By implementing effective controls and procedures, the audit firm can reduce the likelihood of missing errors or irregularities in the financial statements

- Increase audit efficiency: By optimizing the audit process, the audit firm can improve its efficiency and productivity

- Enhance the firm's reputation: By providing high-quality audit services, the audit firm can build a strong reputation and attract new clients

The Importance of Auditing the Payroll and Personnel Cycle:

On the balance sheet, "Payables to Employees" is a significant item, and labor costs often account for a large proportion of expenses, especially in manufacturing or service industries Payroll is an area where errors and fraud are likely to occur, leading to financial losses for the company

In addition, if the allocation of payroll costs to different cost centers is not accurate and reasonable, it will affect the accuracy of many other indicators on the financial statements, directly impacting the company's operating results The outcome of the payroll and personnel cycle audit affects the outcome of the entire audit

The results of payroll and personnel cycle audits directly impact the overall audit outcomes While KPMG Vietnam's payroll and payroll deductions audit procedures are constructed according to the company's standards and prove effective in practice, they also reveal certain limitations Therefore, enhancing the payroll and personnel cycle audit procedures in financial statement audits at KPMG Vietnam is highly essential.

Improvement principles and requirements for the payroll and payroll

3.2.1 Principles for completing the payroll and payroll deductions audit process and in auditing financial statements performed by KPMG Vietnam Co., Ltd

To improve the audit process of the payroll cycle and salary deductions in the audit of financial statements conducted by KPMG Vietnam Limited, the following principles must be followed:

- Compliance with international practices and integration trends: The improvement must be in line with international practices and integration trends

- Compliance with the legal system and specific conditions of Vietnam: The improvement must be in line with the legal system and specific conditions of Vietnam

- Simplicity, clarity, ease of implementation, control, and cost savings: The improvement must be simple, clear, easy to implement, control, and cost-saving

In addition, it is necessary to focus on maintaining, improving, and rewarding and rewarding employees to encourage work spirit, as well as forms of discipline,

107 criticism, and self-criticism for violations to ensure the operating principles of the Company

3.2.2 Requirements for completing the payroll and payroll deductions audit process and in auditing financial statements performed by KPMG Vietnam Co., Ltd

- Must have solid knowledge of accounting, auditing in general and payroll and payroll deductions in particular;

- Must regularly update and improve knowledge of new regulations in general and knowledge of accounting, auditing, and tax in particular;

- The audit process must strictly comply with Vietnamese auditing standards and related regulations, flexibly apply the audit procedures developed by the audit firm;

- Must maintain independence, integrity, and confidentiality in the audit, always be highly responsible in the performance of work

- Regularly update, grasp information, knowledge of documents, new regulations issued by the State on accounting, auditing, and other documents;

- Build an audit process for items in a scientific way, ensuring that the audit is of high quality, effective, and economical;

- Organize the inspection and supervision of the implementation of audit procedures by auditors;

- Regularly train the company's staff;

- The company needs to create maximum conditions for employees by building and purchasing modern office equipment, means of transportation, and communication systems to meet the increasing requirements of audit services;

It is necessary to strive to ensure that the audit process is carried out to the maximum extent, including the contents of the regulations on the three stages of the audit: Audit planning stage, audit execution stage, and audit completion stage

Solution for the process on the current status of the payroll and payroll

Firstly, the BOD needs to implement a policy to control employees, requiring a serious evaluation of customers because inadequate evaluations can impact the quality of audits Therefore, the company needs to closely monitor the customer evaluation process before accepting to provide audit services Before accepting an audit, the company's BOD should review documents such as customer evaluation notes, customer risk assessment sheets, and independence commitment documents The company must carefully review the following documents: client assessment memo, client risk assessment table, and independence commitment, ect The company must consider whether it can meet the client's audit requirements, whether there is a conflict of interest, and whether accepting the audit would violate the independence and professional principles of the auditors The company must weigh the benefits and costs before deciding whether to accept a client

Secondly, regarding staffing arrangements: Before entering the "peak season" (from December of the previous year to March of the following year), KPMG usually organizes internship exams for third and fourth-year students majoring in Economics from all universities nationwide This event has contributed a significant amount of workforce to participate in audits However, the lack of specialized knowledge and experience of interns sometimes inadvertently adds burdens to core audit team members: requiring additional time for platform guidance, explaining basic knowledge, etc Therefore, the author proposes that the company organize the exam at least two weeks to one month earlier to allow interns to familiarize themselves with the new environment and receive training Specifically, combining theoretical guidance and practical training (on-the-job training) for basic areas such as cash, fixed assets, prepayments, etc., and basic operations on audit software so that interns are not confused and do not consume additional time of responsible auditors In addition to

109 selecting experienced auditors to perform payroll and related audit tasks, the company should also develop general guidelines for less experienced auditors to handle specific cases for some clients These audit procedure instructions should be detailed and specific for different types of businesses to provide the most convenient conditions for auditors

Thirdly, assessing the overall financial position of the enterprise before evaluating risks: In addition to using questionnaires, auditors should also combine flowcharts to describe tax accounting and related internal control activities or combine narrative tables to have a more general overview of the overall financial position of the customer In cases where there is no time or cost pressure, the company should encourage its employees to combine all three methods or at least two methods When describing the financial position for tax items through flowcharts, to increase the effectiveness of this method, the company should establish specific guidelines, execution methods, common conventions, and symbols for the entire company Understanding the client's tax situation will help auditors identify areas of high-risk and focus audit procedures on critical areas of tax items without wasting much time

Fourthly, currently, very few audit firms allocate materiality levels for each item on the financial statements As evaluated above, allocating materiality levels for items in the payroll and payroll deductions is important in the audit process and proactive in completing work documents Therefore, the company should design and supplement procedures for allocating materiality levels for cycles, items, including the payroll and payroll deductions before developing the audit program

Firstly, enhancing Diversity and Combining Multiple Audit Procedures to Ensure All Audit Objectives are Met: From the planning stage, the Audit Senior needs to designate detailed audit objectives and suggest corresponding audit procedures and mandate the Assistant Auditor in charge of the execution to perform a minimum number of audit procedures and collect a certain amount of audit evidence

Secondly, as presented in the existing section, the Company only analyzes the fluctuation of salary costs between this quarter and the previous quarter or this year and the previous year, and analyzes the fluctuation of salary costs between months in the quarter However, the Company should further analyze some other financial (for preliminary analysis) and non-financial indicators such as: Salary expenses/ profit after tax; Salary expenses / total cost; Salary expenses/ revenue

In addition, the Company should compare these indicators of the client company with the data of other companies in the same industry and field of operation to better see the reasonableness of that fluctuation

Furthermore, the analyst should analyze the salary costs between the months of this year and compare it with the previous year to see more clearly the fluctuation of salary costs Analyzing the costs of the months in two years helps the analyst to assess the reasonableness of salary costs more accurately

First, regarding the timely completion of all requirements in the work checklist: The checklist should be designed in detail and disseminated to all audit team members at the start of the audit, not the end The audit team leader needs to regularly check the progress of the work, encourage or urge members to complete it on time, and then review the work If the work is completed and the results are as expected, the audit team leader marks it as "Prepared." If not, the progress, reason for delay, and expected completion date should be noted so that the auditor can take timely measures

Second, the Company needs to overcome the limitations in reviewing the working papers of all levels There must be a reasonable allocation of the number of audits for each audit manager and audit director to avoid overwork and overlap Additionally, KPMG should increase the recruitment and training of these senior staff to reduce the workload for each person This will contribute to improving the quality of the audit and creating goodwill with clients

Recommendation to improve the payroll and payroll deductions audit process

in the audit of financial statements performed by KPMG Co., Ltd

3.4.1 Regarding government management agencies and associations

The Vietnamese Accounting Standards (VAS) and Vietnamese Auditing Standards (VSA) are primarily based on the International Accounting Standards (IAS) and International Standards on Auditing (ISA) systems In the face of the rapid changes and developments in the global economy, global experts frequently update the latest guidance for irregular transactions and unprecedented accounting situations However, there are limitations in updating these standards in Vietnam, resulting in financial statements that do not truly reflect the nature of transactions in practice It is recommended that the responsible regulatory authority expedites the progress of improving and updating standards and guidelines to improve the quality of financial information in Vietnam, contribute to raising the financial market status, and attract foreign investment

The Vietnam Association of Accountants (VAA) and the Vietnam Association of Certified Public Accountants (VACPA) have been in operation for over ten years, are members of the International Federation of Accountants (IFAC), and the Association of Southeast Asian Nations (AFA) However, they have not yet held a significant position in managing, inspecting, and evaluating the quality of accounting and auditing services Therefore, in the coming years, the Vietnam Association of Accountants and Auditors needs to enhance its activities to further elevate its position and role in the development of independent audit activities specifically and auditing activities in general This can be achieved through activities such as:

- Enhancing exchanges and collaborations with regional and global professional organizations to improve the effectiveness of association activities and contribute to the overall integration of the industry

- Leveraging technical support from international professional organizations and non-governmental organizations to research and exchange experiences in auditing

- Providing technical support to innovate the industry's management model, introducing specialized techniques suitable for the rapid development of the auditing sector

- Further strengthening the development of professional ethics, professional research, and updating knowledge for members of the Association

- Strengthening supervision and management of auditing firms further Given the increasing number of auditing firms in the current market without assured quality, enhanced monitoring and management are essential

- Expanding and improving the national CPA certification examinations and regularly organizing training courses to improve the skills of the auditing team, truly demonstrating the role of a professional organization

- The Association should further promote its role in participating in the development of policies and regulations in auditing

3.4.2 Regarding KPMG Co., Ltd and auditors

Firstly, regularly organize training courses and update new knowledge for auditors and audit assistants Based on the fact that the young workforce at the company does not have much experience, training, updating and improving knowledge of accounting, auditing, tax and law will help auditors and audit assistants improve their professional and technical qualifications, thereby improving the audit quality for KPMG At the same time, there is financial support to make it easier for employees to access global professional certifications The company can also further improve the welfare regime for employees in terms of both material and spiritual aspects during the working process

Secondly, improve audit work efficiency by increasing the application of new technologies in professional activities For example, integrating artificial intelligence

113 into the sampling software: with intelligence and quick learning, artificial intelligence will screen samples in a selective manner, the sample size is smaller but contains more information, and at the same time it will automatically judge, analyze and compare to give warnings to auditors about abnormal samples, requiring auditors to focus on reviewing those samples using suggested audit procedures

Thirdly, strengthen the review of working papers, documents and audit files This is usually done after the completion of each part of the audit and the final audit When conducting an audit, it is inevitable that errors and mistakes will occur in the performance of audit procedures, especially for auditors and audit assistants who do not have much experience

First, regularly update knowledge of accounting, auditing, tax, and law There are increasing opportunities for auditors to be recognized by international organizations such as ACCA, ICAEW, etc Therefore, Vietnamese auditors should develop a strategic plan to continuously improve themselves, enhance their competitiveness in the global labor market, and be ready to integrate into the international environment This is an important condition to improve the quality of an audit

Second, strictly and fully implement audit procedures, including procedures such as internal control review and analysis This is to ensure that the audit risk is at an acceptably low level Only when auditors are aware of the role of these procedures will they perform them seriously and responsibly

Third, regularly communicate with auditors performing other parts of the audit The coordination between the parts contributes to reducing time costs while still ensuring the efficiency and quality of the audit

Audited entities need to understand the true importance of auditing, which is to help businesses look back at themselves to develop their strengths and correct their weaknesses In addition, client entities need to provide all the documents requested by the auditor The arising economic activities must be ensured to comply with the

114 requirements and principles of accounting, thereby supporting the client entities to quickly complete the work of the auditing companies

In addition, organizations also need to focus on improving the effectiveness of the ICS because it is not only a tool to effectively monitor the operations of these organizations and improve system security, but also makes the audit work easier, reducing costs and audit time, as well as audit risks

3.4.3 Regarding training institutions and students

Periodically organize inspections of the quantity and quality of the students before graduation From there, proactively innovate content, programs, and methods to improve the quality of training, develop accounting and auditing human resources, combine theory and practice, and link with the digitization process and digital transformation of accounting and auditing

Universities training in accounting and auditing majors need to innovate their teaching materials to suit the changes of the Accounting and Auditing Regime and Standards of Vietnam and the world, and at the same time be more suitable for the reality of applying that knowledge To achieve this innovation, it is necessary to have appropriate investment in time, effort, and money from universities Cooperation between universities also becomes necessary and decisive for this innovation

In addition, training centers need to combine with training in more depth Vietnamese accounting and auditing knowledge, combining the comparison between Vietnamese Accounting Regime and Standards with international ones so that trainees have a more comprehensive view of the differences and practical application in Vietnam At the same time as comparing with international standards, training centers also need to integrate with updating changes in the Vietnamese accounting regime and standards, ensuring that the audit process of cycles and items in the financial statement audit in practice is reasonable

To succeed in the auditing and accounting field, students need to proactively equip themselves with the right knowledge, skills, and attitude

When it comes to attitude, students need to understand the specifics of the opportunities and challenges in the auditing profession by consulting teachers, experienced professionals, and participating in career workshops In terms of opportunities, auditing is a profession that fosters an environment of learning and provides opportunities for growth in any space and with any individuals, from colleagues to clients This also means that if one is not willing to invest in learning, they will quickly become obsolete Additionally, students should be aware that the auditing profession demands physical and mental endurance due to the mobile nature of the job and the substantial workload within limited time frames Furthermore, students should early on research information about auditing firms, such as job descriptions, recruitment processes, and corporate culture in order to set their goals and plans during their university years to secure an internship position in their fourth year, as per the schedule

In terms of knowledge, students should actively engage in learning through the guidance of their professors at the university, while also enhancing their knowledge and self- study skills by participating in scientific research topics, short courses on platforms like Coursera, LinkedIn, alongside the scheduled classes Students should also participate in competitions related to the fields of accounting, auditing, taxation, and finance to expand their networks, interact with like-minded peers, gain proper guidance from experienced professionals, and increase their experience and job opportunities from reputable organizations and professional companies in the industry

Salary deduction rate in 2023

Appendix 1 Salary deduction rate in 2023

Sickness and parental benefit fund

Occupational accident and disease benefit fund

Deducted into the enterprise's expenses (%)

Regional minimum wage in 2023

Appendix 1 Salary deduction rate in 2023

Sickness and parental benefit fund

Occupational accident and disease benefit fund

Deducted into the enterprise's expenses (%)

Appendix 2 Regional minimum wage in 2023

Region Minimum monthly salary Minimum hourly wage

Maximum salary for various types of insurance in 2023

Type of Insurance Regulations No more than

Social Insurance and Health Insurance

20 times higher base wage minimum

20 times higher wage region minimum

Personal income tax rates for progressive method

Annual taxable income (million VND*) Monthly taxable income (million VND) PIT rate (%)

(Source: Source: Author's own compilation)

Personal income tax rate table according to the shortened method

1 0 to 5 5 0 mil VND + 5% taxable income 5% taxable income

2 5 to10 10 0,25 mil VND + 10% taxable income of 5 mil VND

3 10 to 18 15 0,75 mil VND + 15% taxable income of 10 mil VND

4 18 to32 20 1,95 mil VND + 20% taxable income of 18 mil VND

5 32 to 52 25 4,75 mil VND + 25% taxable income of 32 mil VND

6 52 to 80 30 9,75 mil VND + 30% taxable income of 52 mil VND

7 More than 80 35 18,15 mil VND + 35% taxable income of 80 mil VND

Engagement Evaluation Detail Report (KPMG’s WP)

Engagement Name ABC - AUD 31Dec2023

Engagement Type Recurring Engagement Yes

Next Fiscal Year End Date Date 12/31/2023

Is the (prospective) client listed or planning to list? x No

Is the (prospective) client a Public Interest Entity? x No

Is the engagement realisation potentially a threat to the proper discharge of KPMG's responsibilities? x No

The parent company, ABC Co., Ltd, is incorporated in Vietnam The ultimate parent company, XYZ Inc., is incorporated in Philippine

Has there been a client reevaluation evaluation performed other than a client continuance on an annual basis? x No

Audit engagement manager Rotation / Independence

Will the engagement involve members of the engagement team working in another

Does the engagement involve the provision of restricted services? x No

Are there any other factors that increase risk that the team will not have all the appropriate resources or skills to undertake the engagement? x No

Have there been any significant accounting issues identified? x No

Have there been any significant audit issues identified? x No

Are we accepting/continuing with this engagement because we cannot refuse to do so as a result of applicable law or regulation, where we would otherwise refuse to accept or continue with the engagement? x No

Conclusion: In accepting this engagement, engagement team confirmed that:

 We have answered all questions in the CEAC evaluation accurately The rationale and

 Supporting documents were adequate for a reviewer without previous involvement to

 Understand and the relevant information on the proposed engagement and the reasonableness of

 There is no identified potential conflict of interest;

 There is no identified risks related to the client’s governance;

 The information added in the Sentinel Request is correct;

 Sufficiency of engagement resources for this engagement;

 No requirement for intellectual or technological resources additional to the KPMG methodology, guidance materials and tools

Determination of Materiality (KPMG’s WP)

Period ended: 31 Dec 23 Prepared by: NKT

Subject: Determination of Materiality Date: 5 Jan 2024

Metric that will serve as the benchmark

[1] Identify the relevant metrics, including the benchmark

Under Keag guidance, How do we think about what is important to the users? [ISA | 925.11823]

Metrics are measurable elements of the financial statements or measures derived from elements of the financial statements) Metrics can be either gross or net metrics

We think about the following considerations that can help us determine what is important to the users:

The nature of the entity Profit-seeking entity [ISA | 925.11823]

Presumed metrics and benchmark PBTCO/LBTCO* [ISA | 925.11826]

Below are examples of how these consideration may indicate what is important to the users:

Consideration What is important to the users? Example of a metric that may be relevant

Profit-seeking entity The entity’s profitability and prospects for future net cash inflows

A high leverage entity The entity's ability to service its debt, including the ability to satisfy obligations and comply with debt covenants and continue as a going concern

An entity is an industry where margins can fluctuate significantly

The sales base that would drive future profitability and cash flows

An entity primarily generating profit from lending activities

The asset base that drives lending activities- i.e the primary profit- generating activities

Conclusion: Metris applicable to the circumstances of the entity are:

[3] [ISA | 935.1700] - DETERMINE MATERIALITY FOR THE FINANCIAL STATEMENT S AS A WHOLE

Where materiality for the financial statements as a whole is determined by reference to a: then, materiality as a percentage of the amount of the benchmark for non-listed entities ordinarily materiality as a percentage of the amount of the benchmark for listed entities ordinarily:

A net metric - e.g PBTCO 3 – 10% 3 – 5% Net benchmark were selected:

PBTCO Non-Listed entity: range of benchmark: 3% - 10%

Net assets/equity 0.5 - 3% 0.5 - 2% NOT APPLIED

A gross metric -e.g total assets, total revenues or total Expenses

[ISA | 932.1300] What qualitative factors do we consider when establishing materiality?

Factor Higher percentage Lower percentage KPMG ASSESSMENT

Ownership structure • Small number of well informed investors or owners/ Few external users of the entity's financial statements

• Few changes in stakeholders have occurred or are expected

• Large number of investors or owners

• Intention to list or register securities

• Recent or expected sale of the entity

Non-Listed entity =>Higher amount

Debt Arrangements • Entity with limited or no debt

• Debt covenants with significant cushion

• Debt holders have access to management and do not rely solely on audited financial statements

• Debt covenants with little cushion or highly sensitive to operatingresults

• Debt holders have limited access to management

• Debt holders primarily rely on audited financial statements

Business environment Stable business environment

• Entity operates in a politically stable environment

• Entity operates in a politically unstable environment

• The entity operates in a highly regulated industry

Business in Vietnam Quite stable => Higher amount

Earnings/EPS Sensitivities • Small changes in earnings or earning per share have a limited impact on users

Small changes in earnings or EPS have a significant impact on users

The amount of the benchmark: 39.233.777.574

Materiality as a% of benchmark is

Materiality % Materiality/total assets Note

Thus we decide to choose % materialtity of benchmark is 10%

[4] DETERMINE PERFORMANCE MATERIALITY AS % OF THE MATERIALITY

How do we assess the level of aggregation risk as Normal, Increased or High? [ISA | 942.1400]

Factor Indicators Aggregation risk level

Deficiencies in CERAMIC controls An entity that has historically had no

Number and severity of deficiencies in control activities, including pervasiveness of internal control deficiencies

An entity that has historically had no deficiencies in its control activities

History of misstatements (the nature, cause

(if known), and amount) that were accumulated in audits of the financial statements of prior periods (both corrected or uncorrected)

An entity that has historically had no uncorrected misstatements that were significantly and approaching to Materiality, individually, and impacted only a few accounts

Level of turnover of senior management or key financial reporting personnel

An entity that had no turnover in senior management, none of which related to potential impropriety or fraud

Management's preparedness/ willingness to correct misstatements

Management corrects all misstatements identified that are considered more than clearly trivial amounts

Proportion of accounts not identified as significant accounts

A smaller value of the total accounts identified are determined to be non- significant accounts

Normal an initial audit engagement No Normal an increased number of accounting issues that require significant judgment and/or more

133 estimates with high estimation uncertainty, and an entity that operates in a number of locations No Normal

Breakdown of Salary expenses (KPMG’s WP)

Description Breakdown of 622 Breakdown of 627 Breakdown of 641 Breakdown of 642 Total

Health & accident insurance 86,486,862 85,653,530 68,435,622 240,576,013 off-training 40,850,000 25,750,000 61,166,748 127,766,748

Gerenal AR: The customer records all actually incurred salary costs of the sales department in account 641, administrative and management departments in account 642, direct and indirect labor costs in account 622

In addition, in account 627, Client records the standard cost when producing finished goods and revert it when the finished goods are sold Please refer WP costing for more details

In account 627, Client also records the actual costs of meals, welfare, toxic allowances, and uniform.

Check payroll match GL working paper

Month Actual Salary Overtime Discretionary bonus

Recalculate payroll, payroll deductions and PIT (KPMG’s WP)

Period ended: 31-Dec-23 Prepared by: D.N.A

Test of Accuracy for Payroll for employees and payroll for Temporary labor

Insurance by Employee Insurance by Employer

Net income to Employee (person) (VND) (VND) (VNĐ) (VND)

Total cost per Client Diff

(VNĐ) (VNĐ) (VNĐ) (VNĐ) (VNĐ)

ASSESSMENT OF THE THESIS BY THE SUPERVISOR

KLTN By Ánh Đỗ Ngọc

2% match (student papers from 07-May-2022) Submitted to University of Economics & Law on 2022-05-07

1% match (publications) Ton Duc Thang University

1% match (AICPA "AICPA PROFESSIONAL STANDARDS VOLUMES 1 AND 2", Wiley, 2019)

AICPA "AICPA PROFESSIONAL STANDARDS VOLUMES 1 AND 2", Wiley, 2019

1% match (Joanne M Flood "Practitioner's Guide to GAAS 2014", Wiley, 2014) Joanne M Flood "Practitioner's Guide to GAAS 2014", Wiley, 2014

< 1% match () American Institute of Certified Public Accountants (AICPA) "AICPA Technical Practice Adis, as of June 1, 2002, Volume2", eGrove Press, 2002

< 1% match () American Institute of Certified Public Accountants (AICPA) "Not-for-Profit Entities, New Edition as of March 1, 2013; Audit & Accounting Guide", eGrove Press, 2013

< 1% match () American Institute of Certified Public Accountants (AICPA) "Property and liability insurance entities, July 1, 2015; Audit and accounting guide", eGrove Press, 2015

< 1% match (Internet from 19-Jun-2023) https://assets.kpmg.com/content/dam/kpmg/kh/pdf/publication/2023/kpmg- investing-in-cambodia-2023-and-beyond.pdf

< 1% match (Internet from 20-Apr-2023) https://assets.kpmg.com/content/dam/kpmg/lt/pdf/kpmg-lithuania- transparency-report-2022-en.pdf.pdf

< 1% match (Internet from 12-Jan-2023) https://pdfcoffee.com/353541680-aud-theory-compiled-pdf-free.html

< 1% match (Internet from 18-Jan-2023) https://de.slideshare.net/HuynhHa6/lun-vn-xc-lp-mc-trng-yu-v-ri-ro-kim-ton- ting-anh https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm &oid#68715439&sid=0&n=0&m=2&svr=6&r.91575894846411&lang=e…1/31