PwC Methodology ...14 2.1.5 PwC’s organizational structure ...15 2.2 General audit procedures for financial statement at PwC VietNam..... 3 Figure 2 : Classes of Transactions, Accounts,
Research rationales
In the context of the COVID-19 pandemic and the rapid growth of the global economy influenced by the fourth industrial revolution, investment demand has slowed, highlighting the need for reliable information sources for investors Financial statements are essential tools for assessing a company's production and financial health; however, business owners often attempt to manipulate these statements to their advantage As a result, the accuracy of financial statements cannot be fully trusted without verification from an independent third party.
The role of the auditor is essential in enhancing the fairness and transparency of financial statements, fostering trust among users Payroll expenses, which include salaries, bonuses, and employee benefits, represent a significant portion of a company's overall expenses and frequently impact financial reporting Consequently, effective management of payroll is a top priority for administrators Researching payroll audit procedures, particularly the "AUDIT PROCEDURE FOR PAYROLL BY PWC (VIETNAM)," is vital due to its complexity and importance in ensuring accurate financial practices.
Experiment’s objectives
Recognize and characterize PwC Vietnam Co., Ltd.'s general auditing procedure.Describe and analyse PwC Vietnam Co., Ltd.'s payroll auditing procedure.
Research scope and subject
This report focuses on the auditing process of payroll at PwC Vietnam Co., Ltd., emphasizing key areas such as staff costs, the reasonableness of Social Insurance and Health Insurance (SIHI), bonuses, joiner-leaver adjustments, and compensation for key management personnel.
The report focuses on the audit procedures evaluated during the fiscal year 2022 A key limitation highlighted in the report is the issue of confidentiality, which poses significant challenges for reputable auditing firms like PwC Vietnam Consequently, the information presented in the report has been modified, including changes to data and names, to ensure privacy while still serving as a reference.
Report’s methods
Since payroll process testing is a metric test, it is advised to apply fundamental testing techniques, such as the ones listed below:
- Method for synthetic evaluation and analysis
- Procedure for verifying transaction information and account balances
Subject Structure
The thesis is broken up into three chapters, in addition to an introduction and conclusion, as follows:
- Chapter 1: Introduction about theoretical basis of payroll audit
- Chapter 2: Auditing process of payroll audit item in the audit of financial statements performed by PwC Vietnam Co., Ltd
- Chapter 3: Comments, assessments and recommendations to improve the audit process of payroll audit of PwC Vietnam Co., Ltd
INTRODUCTION ABOUT THEORETICAL BASIS OF PAYROLL AUDIT
Definition of payroll
In Vietnamese firms and industries, the term "payroll" is commonly used to refer to the list of employees eligible for wages and employment benefits This essential document outlines the compensation each employee will receive, including salaries and additional perks.
Payroll encompasses a company's records of employee payments, including wages, bonuses, tax deductions, and the compensation department It also reflects the earnings each employee will receive for their work Businesses can choose to manage the entire payroll process in-house or opt for outsourced payroll services.
Account and transactions in payroll
The primary goal of auditing the payroll and personnel cycle is to assess whether the account balances influenced by this cycle are accurately presented in compliance with relevant accounting standards.
Figure 1: Typical accounts in the payroll and personnel cycle
In many accounting systems, the accrued wages and salaries account is utilized solely at the end of the accounting period During the period, expenses are recorded based on actual employee payments rather than when labor costs are incurred To account for earned but unpaid labor costs, adjusting entries are made at the period's end.
Business functions in the cycle and related documents and records
The payroll and personnel cycle initiates with employee hiring and concludes with compensation for their services, including payments to government entities for withheld payroll taxes and benefits This cycle encompasses acquiring employee services aligned with company goals and accurately recording these services.
Figure 2: Classes of Transactions, Accounts, Business Functions, and Related
Documents and Records for the Payroll and Personnel Cycle
Risk
Many audits have a minimal risk of material misstatements, even though payroll is often a significant part of total expenses There are three reasons for this:
- Employees are likely to complain to management if they are underpaid.
- All payroll transactions are typically uniform and uncomplicated.
- Payroll transactions are subject to audit by federal and state governments for income tax withholding, Social Security, and unemployment taxes.
Figure 3: Risk in payroll system
Control payroll - the methodology for designing tests of controls and substantive tests
Effective internal control for payroll is essential for managing cash disbursements, reducing employee complaints and dissatisfaction, and preventing payroll fraud To address common payroll challenges faced by businesses, high-quality computerized payroll accounting systems are readily available.
Companies typically find it easy to maintain effective control over payroll and personnel cycles due to the high volume of consistent, small transactions for factory and office employees, while executive payroll transactions are fewer but stable in timing and amount As a result, auditors generally do not anticipate discovering exceptions during payroll transaction testing Although control test deviations can happen, most monetary misstatements are promptly addressed through internal verification processes or employee complaints, and when misstatements do occur, they are seldom significant.
Testing controls and conducting substantive transaction tests are crucial for verifying payroll and personnel account balances, primarily due to the absence of independent third-party evidence, such as confirmations, for accrued wages, withheld income taxes, and accrued payroll taxes Typically, the amounts in these balance sheet accounts are minor and can be easily verified if the auditor is assured that payroll transactions are accurately recorded and payroll tax returns are properly prepared.
Table 1: Summary of Transaction-Related Audit Objectives, Key Controls, Tests of
Controls, and Substantive Tests of Transactions for Payroll
Key Internal Controls Common Test of
Common Substantive Tests of Transactions Recorded payroll payments are for work actually performed by existing employees
- Time records are approved by supervisor.
- Time clock is used to record time.
- Adequate human resource files are maintained.
- There is separation of duties among human resources, timekeeping, and payroll disbursements.
- Only employees existing in the computer data files are accepted when they are entered.
- Examine time records for indication of approvals.
-Review organization chart, discuss with employees, and observe duties being performed.
- Examine printouts of transactions rejected by the computer as having non-existent employee numbers.
- Examine payroll records for indication
- Review the payroll journal, general ledger, and payroll earnings records for large or unusual amounts.
- Compare cancelled check or direct deposit information with human resource records.
- Compare cancelled checks with payroll journal for name, amount, and date.
- Examine cancelled checks for proper endorsement. issuance of approval.
Existing payroll transactions are recorded
- Payroll checks are prenumbered and accounted for.
- Bank accounts are independently reconciled.
- Account for a sequence of payroll checks.
- Discuss with employees and observe reconciliation.
- Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.
Recorded payroll transactions are for the amount of time actually worked and are at the proper pay rates; withholdings are correctly calculated
- Calculations and amounts are internally verified.
- Batch totals are compared with computer summary reports.
- Wage rate, salary, or commission rate is properly authorized.
- Withholdings, including amounts for insurance and payroll savings, are properly authorized.
- Examine indication of internal verification.
- Examine file of batch totals for initials of data control clerk; compare totals to summary reports.
- Examine payroll records for indication of authorization.
- Examine authorizations in human resource file.
- Recompute hours worked from time records.
- Compare pay rates with union contract, approval by board of directors, or other source.
- Check withholdings by referring to tax tables and authorization forms in human resource file.
- Compare cancelled check or direct deposit with payroll journal for amount. Payroll transactions are correctly
- Payroll master file contents are internally
- Examine indication of internal verification.
Test clerical accuracy by footing the payroll included in the payroll master file and are correctly summarized
- Payroll master file totals are compared with general ledger totals.
- Examine initialed summary total reports indicating that comparisons have been made. journal and tracing postings to the general ledger and the payroll master file.
Payroll transactions are correctly classified
- An adequate chart of accounts is used.
- Account classifications are internally verified.
- Examine indication of internal verification.
- Compare classification with chart of accounts or procedures manual.
- Review time record for employee department and job ticket for job assignment and trace through to labor distribution.
Payroll transactions are recorded on the correct dates
- Procedures require recording transactions as soon as possible after the payroll is paid.
- Examine procedures manual and observe when recording takes place.
- Examine indication of internal verification.
- Compare date of recorded payment in the payroll journal with date on cancelled check or direct deposit and time record.
- Compare date on check with date the check cleared the bank.
How to book account in salary process according to Circular 200
The account is utilized to monitor payables and payments to company employees, including salaries, wages, bonuses, social insurance, and other labor-related amounts Account 334, designated for payables to employees, consists of two tier 2 accounts.
Account 3341 - Staff Cost represents the company's liabilities related to employee compensation, encompassing salaries, bonuses, social insurance, and other payments that contribute to the overall take-home pay of workers.
Account 3348 pertains to the costs associated with collaborators, encompassing salaries, bonuses, and any additional compensation received by employees This account reflects the amounts payable to workers, excluding those directly employed by the firm, highlighting the overall financial obligations related to personnel contributions.
This account, in conjunction with the other accounts in group 33, is utilized to monitor the payment status for both payables and receivables (from account 331 to account 337) Additionally, it serves to track advance revenue received for services provided to clients and to address pricing discrepancies arising from subleasing financial or operating leases.
Account 338: Other payable, have 8 tier 2 account:
Account 3381 pertains to excess property pending settlement, indicating that the reason for this surplus has not yet been identified, and a decision on its management is still outstanding Once the cause for the excess property is established and a handling record is created, it should be promptly recorded in the appropriate accounts, rather than in account 338.
- Account 3382: Trade union fee - Reflecting on the deduction and payment of trade union fees at the unit.
AUDIT PROCEDURES FOR PAYROLL BY PWC (VIETNAM) LIMITED
General about PwC
2.1.1 History of formation and development
Figure 4: History of PwC establishment and development
PricewaterhouseCoopers (PwC), founded in 1984 and established in Vietnam in 1994, operates under the slogan "Building relationships, creating value." As a leading global firm, PwC specializes in audit, consulting, and taxation services, employing over 276,000 professionals across 742 offices in 157 countries In Vietnam, PwC Vietnam Co., Ltd., which was initially known as Price Waterhouse, has two offices in Hanoi and Ho Chi Minh City and employs more than 1,000 staff members, including both Vietnamese and international experts These professionals possess extensive knowledge of investment regulations, taxation, law, accounting, and mergers and acquisitions, as well as a deep understanding of Vietnam's evolving economic landscape.
PwC Vietnam operates as a one-member limited liability company established on May
14, 1994 under the investment license No 862/GP issued by the Ministry of Planning and Investment.
2.1.3 Organization scale and business situation of PwC Limited Liability
Company Vietnam a) Scale of organization
PwC, a leading name in the audit and assurance services industry, boasts a rich history of establishment and expansion With over 3,000 experts across Southeast Asia, PwC operates in key markets including Thailand, Vietnam, Myanmar, Malaysia, the Philippines, Singapore, Cambodia, and Laos.
PwC Vietnam operates two offices in Hanoi and Ho Chi Minh City, employing over 1,000 professionals from diverse nationalities With more than 20 years of experience, the majority of their team possesses extensive expertise in investment, tax, legal, accounting, and consultancy practices, reflecting the deep understanding of Vietnam's dynamic economy.
Main office of PwC Vietnam Co., Ltd:
At Ho Chi Minh City
29 Lê Duan Street, District 1, HCMC
16 Floor, Keangnam Hanoi Landmark Tower, District Nam Tu Liem, Ha Noi
Diagram 1: PwC Line of Services
The year 2022 presents significant challenges for many companies, including PwC, due to the ongoing widespread impact of COVID-19 in various countries and the uncertainty of economic recovery Alongside the pandemic, the global economy is facing a severe crisis, creating numerous difficulties for society.
As a major global corporation, PwC continuously assesses economic trends and sets future-oriented goals, allowing it to implement proactive measures effectively While the ongoing economic crisis may not significantly impact its operations, PwC remains committed to taking the necessary initiatives to navigate the uncertain economic landscape.
PwC Vietnam Co., Ltd offers a range of high-quality professional services, including auditing and assurance, tax consulting, legal and business consulting, and operational consulting Their audit and assurance services are designed to enhance the reliability of financial information and support clients in achieving compliance and operational excellence.
PwC Vietnam's audit and assurance section delivers comprehensive assurance services focused on assessing a company's financial health and operational performance Their offerings include audited financial statements, financial information reviews, process and system audits, capital market services, inspections based on pre-agreed procedures, IFRS-compliant report conversions, and accounting consulting Additionally, they provide expert tax advisory services to enhance financial decision-making.
PwC offers a comprehensive range of tax advisory services, including payroll management, immigration assistance, and customs services Their expertise extends to tax inspection and examination, transfer pricing, and tax assessment, ensuring compliance through consulting and support services Additionally, PwC reviews tax compliance, collaborates with relevant authorities, manages tax risks, and resolves disputes They also provide personal income tax services and support for international personnel transfers, alongside legal consulting services.
PwC Legal Vietnam is the only firm in Vietnam that provides a comprehensive range of legal consulting services, including tax and financial advising, as part of the PwC international network Their expertise encompasses investment legal advice, compliance consulting, corporate governance, banking and finance law, labor law, business and commercial legal matters, mergers and acquisitions, real estate legal guidance, and advisory services for business mergers and acquisitions.
PwC's consulting services fall into two main categories:
- Consulting on deals: transaction appraisal consulting; corporate financial consulting; valuation consulting; infrastructure, government and utility consulting; consulting on business restructuring.
- Operational consulting: strategic consulting, post-merger integration; consulting on cost management and operational efficiency; internal audit consulting; …
PwC Vietnam is divided into a number of units with distinct responsibilities The graphic below depicts PwC Vietnam's core organizational structure:
Diagram 2: Organizational structure at PwC Vietnam
Where the graphic below illustrates the structure of the audit department:
At PwC, the allocation of audit team members is determined by the complexity of the contract, their organizational rank, and their specific skills Auditing roles are categorized based on staff knowledge, experience, and competencies, with the audit assistant level 2 (A2) representing the entry-level position, typically occupied by recent graduates or those with 1-2 years of experience Team members at the same rank possess similar levels of expertise and knowledge.
The audit team is divided into management and implementation levels during the execution of an audit contract, with the individuals directly involved in the audit referred to collectively as the audit team.
The management structure of an audit contract consists of key roles including the Engagement Leader (EL), who is a Board member responsible for overseeing the entire contract, the Quality Review Partner (QRP) tasked with quality monitoring, and the Team Manager (TM) who supervises the audit group At the implementation level, the Senior In Charge (SIC) leads the audit team, supported by team members who contribute to the audit process.
General audit procedures for financial statement at PwC VietNam
The PwC audit guide, methodology handbook, and electronic audit policy outline the global audit methodology utilized by PwC This approach is enhanced through the collaboration of technical experts and practitioners from various countries, coordinated by three dedicated groups, ensuring ongoing improvements in the auditing process.
- The Global Audit Policy Board: sets broad policy guiding concepts for development and improvement initiatives.
The Global Audit Methodology Steering Group focuses on in-depth development initiatives, promoting the practical application of methods and policies They achieve this by utilizing supportive procedures and tools, adhering to established guidelines, and providing comprehensive training materials.
The Global Risk and Quality Group conducts annual quality evaluations to ensure consistent application of processes By providing valuable input, R&Q enables PwC's continuous improvement process to effectively respond to and resolve practical issues as they arise.
Figure 5: Audit procedure for FSs at PwC VietNam Source: Internal Audit Services - PwC
In PwC, auditors use circular 200, VAS and IFRS norm to audit
Aura serves as an essential auditing tool at PwC, equipped with a user-friendly guidebook for auditors Additionally, PwC offers a range of supplementary tools to enhance the auditing process.
Figure 6: Audit tools at PwC
Audit procedure for payroll audit by PwC (VietNam) Limited
2.3.1 Audit planning a) Obtain client information
Company name: ABC Joint Stock Company
The company, as outlined in its enterprise registration certificate, primarily engages in film screenings, consumer electronics creation, and the sale of electronic and telecommunications equipment Additionally, it focuses on the production and distribution of motion pictures, video films, and television programs, alongside various online activities and unclassified business support services The company's standard production and business cycle spans 12 months, and as of December 31, 2022, it employed 146 individuals.
Employees receive a net wage from their employer, encompassing their contractual salary, overtime pay, allowances, and bonuses, after deductions for insurance, union fees, and personal income taxes Salaries are deposited into employees' VP Bank accounts on the 20th of each month, with all salary-related expenses meticulously documented in the enterprise's detailed payroll records Understanding the accounting and internal control system is crucial for effective salary management.
The ABC Company utilizes a fully computerized accounting system, ensuring efficient recognition, measurement, presentation, and disclosure of significant financial information In 2022, the auditor confirmed that there are no new financial reporting standards, laws, or regulations impacting the ABC Company.
The auditor utilizes their prior experience and information gathered from initial management interviews to understand the organization's internal control system By employing questionnaires and their own judgment, auditors evaluate the effectiveness of this system They then develop a preliminary assessment regarding the quality and quantity of the evidence collected, drawing conclusions based on their observations.
- Apply: Inquired of management to obtain understanding of controls relevant to the audit, including any controls relevant to significant risks.
The auditor found that the management effectively establishes a strong 'tone at the top,' fostering a culture of integrity through both formal and informal policies, including a communicated code of conduct A whistle-blowing mechanism, such as an ethics hotline, has been implemented and communicated to employees, ensuring a clear point of contact Management demonstrates a balanced approach to financial reporting, selecting appropriate accounting principles and estimates that reflect their deep understanding of the entity Those charged with governance possess the necessary experience, competence, and independence, as confirmed by the auditor's observations of their backgrounds and participation in meetings Additionally, well-defined policies for payment authorization have been established, and key management and financial reporting personnel exhibit the requisite knowledge, skills, and integrity to fulfill their roles Overall, management cultivates a culture where financial reporting is prioritized, evidenced by consistent behaviors and supportive policies.
The auditor conducted a risk assessment by reviewing the strategic plan and budget, confirming their alignment with the entity's size and complexity It was observed that management sets strategic and operational objectives that are suitable for the organization Furthermore, these objectives are regularly updated and presented to governance for review and approval, as evidenced by the auditor's examination of meeting minutes discussing the approval of these objectives.
The auditor's review of meeting minutes on risk assessment revealed that management has established a systematic approach for identifying, evaluating, and addressing risks that could hinder the achievement of organizational objectives This includes both formal and informal processes for assessing the risks of fraudulent financial reporting and illegal activities Additionally, management implements appropriate reviews of financial statements, journal entries, and other transactions to effectively mitigate these risks, as confirmed through the auditor's examination of the processes in place.
The auditor's evaluation revealed that the company has established processes for gathering essential financial information to support its financial reporting objectives and the preparation of financial statements The IT structure and culture foster an effective environment, as evidenced by the behaviors and policies observed within the organization Meeting minutes indicate clear communication among senior financial officers, accounting, finance, IT, and other functional managers regarding financial reporting and internal control matters Additionally, financial information is conveyed promptly and transparently to external stakeholders and regulatory bodies, as demonstrated by the timely filing of external financial information during the most recent audit cycle.
Effective monitoring of internal controls is evident through management's active engagement, enabling the identification of unusual matters The company has established a robust anti-fraud system, as indicated by meeting minutes from governance discussions Continuous evaluations are integrated into business processes, allowing for real-time exception assessments, supported by the auditor’s insights into the financial reporting process An internal audit function is in place to ensure the effectiveness of these controls, with inventory counts observed as part of this monitoring Management regularly identifies and addresses deficiencies through informal meetings, with significant issues communicated promptly to the Audit Committee, as reflected in the reviewed meeting minutes.
To ensure effective management of Information Technology General Controls (ITGCs), we engaged with management to gain insights into the relevant ITGC domains and any operational changes made during the period Our documentation provides a comprehensive overview of the entity's approach to managing ITGC activities, confirming that the relevant controls are both effectively designed and implemented.
-Result: No risk at the financial statement or assertion level identified. c) Risk
After understanding about the internal control system, PwC found that the enterprise has no risk in the payroll procedures. d) Identify materiality
During the audit planning phase, it is essential for auditors to determine the materiality of the financial statements overall and for each individual item, aligning with the audit strategy to ensure the execution of appropriate procedures thereafter.
Overall materiality (OM) is the threshold set by auditors that influences the decisions of financial statement users It serves as the foundation for assessing whether the financial statements present a fair view in all material aspects At PwC, OM is typically calculated as a percentage of specific financial statement criteria, varying according to the nature of the business.
Performance materiality (PM) is defined as the threshold set to prevent errors that, when aggregated, could mislead the overall financial statements At PwC, PM is generally established at levels of 50%, 75%, or 90%, contingent upon the assessed audit risk.
Diagram 3: Global PwC Audit Guide 2015
The Sum of Uncorrected Misstatement (SUM) represents the threshold below which undetected errors do not materially impact financial statements At PwC, the SUM is set between 0% and 10% of the overall materiality level of the financial statements.
Specifically, at ABC Company Limited, materiality is determined as follows:
Overall materiality OM equals 1% of total revenue 15.300.000.000
Materiality of PM performance is 77% OM 11.800.000.000
De Minimis Level SUM is 13% PM 1.530.000.000
Salary process at the enterprise:
The human resources department oversees the recruitment and hiring of personnel, ensuring that all qualified candidates are documented in reports approved by management These reports detail personal information, job positions, responsibilities, base salary, benefits, and authorized deductions One copy of the report is retained by the HR department, while the salary accountant uses another to calculate employee salaries.
COMMENTS AND RECOMMENDATIONS
Comments
At PwC, the contract preparation process is executed with exceptional efficiency, ensuring top-quality contracts that satisfy clients and provide reliable information for financial statement readers The firm emphasizes continuous staff development through regular training sessions and funding for annual courses such as ACCA and CPA Additionally, PwC meticulously organizes audits by identifying and assessing risks, while strategically allocating human resources based on the specific requirements and nature of each task.
PwC Vietnam Auditing Company is renowned for delivering high-quality services that meet client expectations through precise audit reports and the professionalism of its auditors Beyond providing reliable financial statement information, PwC offers valuable advice to enhance clients' accounting practices They address potential risks and errors, particularly from less experienced accountants, ensuring that even minor issues are highlighted to support clients in strengthening their accounting systems.
The payroll process has been thoroughly evaluated by the auditor, who collected all necessary data and recalculated salaries with precision The auditor's substantive tests, conducted without control testing, indicated no issues Additionally, PwC adheres to strict audit criteria during its wage review procedures, ensuring transparency and ease of understanding in its working software and sample examinations.
Staffing challenges remain a significant issue in the auditing industry, impacting firms like PwC Employees are under constant pressure to maintain high-quality standards, leading to increased turnover rates This situation is exacerbated when new hires lack the necessary experience and expertise, as seasoned employees take time to develop their skills Consequently, service quality may suffer PwC often assigns auditors with prior experience with clients to performance audit engagements, leveraging their established relationships; however, this familiarity can pose risks to objectivity.
Recommendation
To effectively tackle the challenges faced by the PwC team, it is essential to provide auditors with adequate benefits and compensation plans, ensuring they can perform their duties safely and efficiently.
To ensure a stable recruitment policy and maintain high-quality human resources, PwC must address workload distribution among its employees During an internship at PwC, it became evident that many coworkers were overburdened, leading to increased pressure and negatively impacting their work-life balance To mitigate this issue, PwC should clearly define workloads for each audit and ensure effective task distribution within audit teams Additionally, implementing training sessions focused on time management and work organization will empower auditors to better balance their professional responsibilities with personal life, especially during peak busy seasons.
During a three-month internship at PwC Vietnam, the author actively participated in financial statement audits and gained insights into the organizational structure and operations of an audit firm Despite handling relatively simple tasks, the experience provided valuable knowledge and practical application of academic theories This hands-on learning not only enhanced the author's skills but also solidified their motivation to pursue a career in auditing.
During the internship, the author gained valuable insights and practical knowledge about payroll processes, specifically related to various enterprises and clients This report reflects the author's comprehensive understanding of payroll in real-world applications However, it is important to note that the findings may be limited by the interns' lack of training, real-world experience, and the short duration of the internship.
Sincere gratitude is extended to Ms Hoang Thi Mai Khanh, the instructor, and the PwC employees for their assistance and support throughout the internship.