2 CHAPTER 1: THEORETICAL BASIS OF AUDIT PROCEDURES FOR GENERAL AND ADMINISTRATIVE EXPENSE .... 4 1.1.4 Presentation of General and Administrative expense on financial statements 4 1.2 Th
THEORETICAL BASIS OF AUDIT PROCEDURES FOR GENERAL
Fundamental characteristics about General and Administrative expense account 3
1.1.1 Nature and classification of General and Administrative expense
General and administrative expenses encompass all costs associated with the management of production and overall administration within a business, along with various other general items relevant to the entire enterprise Under Vietnamese Accounting Standards (VAS), these expenses are recorded in account 642 and do not carry a closing balance.
According to Articles 31 in Circular 177/2015/TT, General and Administrative expenses account is classified into eight sub-accounts:
Administrative staff expenses (6421) encompass the financial obligations related to salaries, wages, and allowances for administrative personnel, managers, and other employees This category includes deductions for social insurance, health insurance, trade union fees, unemployment insurance, and other mandated contributions, ensuring compliance with established regulations.
The account 6422 pertains to the expenses incurred for managerial materials, which includes costs associated with output materials essential for the entity's management This encompasses items such as stationery, repair materials for fixed assets, and various tools used in operational processes.
6423 - Expenses for office supplies: Record expenses for tools and office supplies used for management
Depreciation expenses for fixed assets, such as buildings, warehouses, machinery, and office equipment, are essential for effective business management These expenses reflect the reduction in value of assets over time, ensuring accurate financial reporting and compliance with accounting standards.
6425 - Taxes, fees and charges: Record expenses for taxes, fees and charges such as court expense, legal case, judgment enforcement fees, land rent, and other fees and charges
6426 - Provision expenses: Reflects provisions for doubtful receivables and payables that are included in the management expenses of the entity
Expenses for services purchased from external sources include essential costs such as electricity, water, telephone, fax, petrol, and medical examination and treatment for employees This category also encompasses periodic health expenses for officials, hiring domestic and foreign experts, as well as repair and maintenance of fixed assets and rental costs These expenditures are crucial for effective enterprise management and operational efficiency.
The category 6428 encompasses various miscellaneous expenses related to the general management of the entity This includes costs associated with receptions, foreign transactions, celebrations, customer conferences, and training for staff Additionally, it covers expenses for business trips, inspections, audits, and rewards for initiatives aimed at improving productivity It also accounts for fines incurred from breaches of economic contracts due to unforeseen circumstances, expenditures on fire prevention and security, and costs related to participation in domestic and international trade associations.
1.1.2 Accounting treatment for General and Administrative expense
- Actual administrative expenses incurred in the period;
In the current accounting period, the provisions for doubtful debts and payables must reflect a greater amount than the unused provisions from the previous period This adjustment ensures that financial statements accurately represent potential losses, thereby enhancing the reliability of the company’s financial health and compliance with relevant accounting standards.
- Reduction in amounts recorded for G&A expenses;
The reversal of provisions for doubtful debts and payables occurs when the current period's provision is less than the unused provision from the previous period This adjustment reflects a more accurate financial position by reducing liabilities and recognizing improved collectability of debts.
- Transfer administrative expenses to Account 911 – Financial performance results
1.1.3 Recognition of General and Administrative expense
According to Article 82 of Circular 200/2014/TT-BTC, expenses can be recognized even if payment is not yet due, provided there is certainty they will occur, in order to uphold the principles of prudence and capital preservation Additionally, expenses and the corresponding revenue they generate must be recognized simultaneously, in accordance with the matching principle.
However, in some cases, the matching principle may conflict with the prudential principle in accounting, the accountant must base on the nature and the Accounting
Standards to reflect the transaction honestly reasonable
1.1.4 Presentation of General and Administrative expense on financial statements
As regulated in VAS 21, General and Administrative expense is required to be presented in Statement of Profit or Loss, in which compulsory elements are:
Discount and allowance for damaged/returned goods
The portion of equity in profits or losses of affiliates and joint ventures using the equity method (in the Consolidated Income Statement)
The portion of equity of minority shareholders in profit/loss after tax (in the Consolidated Income Statement)
If a business is unable to categorize expenses on the income statement by their function due to the specifics of its industry, it should instead classify them by their nature Essential information must be included in the Statement of Profit or Loss or in the Notes to the financial statements.
Theoretical basis of audit procedure for General and Administrative expense
The audit of income and expense accounts is intricately linked to the balance sheet, making it an integral component of the overall audit process Misstatements in income statement accounts typically impact balance sheet accounts as well, highlighting their interconnectedness Key audit procedures for these accounts include analytical procedures and tests of control Understanding the essential concepts in auditing expense accounts is crucial for accurately assessing the purposes of the income statement.
The matching of periodic income and expense is necessary for a correct determination of operating results
The consistent application of accounting principles for different periods is necessary for comparability
Both of these concepts must be applied to the recording of individual transactions and to the combining of accounts in the general ledger for statement presentation
1.2.2 Audit objectives for General and Administrative expense
Auditors' transaction-related audit objectives are aligned with management's assertions regarding transaction classes There is a distinction between general transaction-related audit objectives, which apply to all transaction classes in broad terms, and specific transaction-related audit objectives, which are tailored to each individual class The six general objectives discussed are universally applicable, while specific objectives focus on the unique characteristics of each transaction class.
Occurrence - Recorded Transactions Exist This objective deals with whether recorded transactions have actually occurred
Completeness - Existing Transactions Are Recorded This objective deals with whether all transactions that should be included in the journals have actually been included
Accuracy in accounting ensures that recorded transactions reflect the correct amounts, which is essential for maintaining the integrity of financial information This objective is a key component of the accuracy assertion related to various classes of transactions.
Ensuring the accuracy of recorded transactions is essential for maintaining the integrity of financial data This process involves the proper inclusion of transactions in master files and their accurate summarization in subsidiary records and the general ledger This objective is crucial as it aligns with the accuracy assertion for various classes of transactions, guaranteeing that financial information is reliable and correctly reflected in the accounting records.
Classification - Transactions included in the Client’s Journals Are Properly
Classified As the auditor’s counterpart to management’s classification assertion for classes of transaction, this objective addresses whether transactions are included in the appropriate accounts
The timing objective for transactions ensures that they are recorded on the correct dates, aligning with management's cutoff assertion A timing error arises when a transaction is not documented on the day it occurs, which can lead to inaccuracies in financial reporting.
1.2.3 Audit procedures for General and Administrative expense
Audit procedures for expenses, generally, and for General and Administrative expenses, particularly, can be illustrated as:
Analytical procedures are essential evaluations of financial information that analyze the relationships between financial and nonfinancial data, as defined by auditing standards These procedures help auditors assess whether account balances align with their expectations, making them crucial during the planning phase to determine the nature, extent, and timing of audit procedures Additionally, analytical procedures are utilized in the testing phase as substantive tests to support account balances and are often performed alongside other audit methods They are also required during the completion phase to provide a final review for material misstatements or financial issues, allowing auditors to take an objective look at the financial statements The effectiveness of analytical procedures as audit evidence largely hinges on the auditor’s ability to establish a reasonable expectation of recorded account balances or ratios.
Expected results using nonfinancial data
Tests of controls and substantive tests of transaction
Both tests of controls and substantive tests of transactions play a crucial role in verifying both balance sheet and income statement accounts For instance, if an auditor determines that internal controls are sufficient to ensure the accuracy and proper classification of transactions in the acquisitions journal, they gather evidence supporting the correctness of balance sheet accounts like accounts payable and fixed assets, as well as income statement accounts such as advertising and repairs On the other hand, if inadequate controls or misstatements are identified through these tests, it raises the likelihood of errors affecting both the income statement and the balance sheet.
Verifying income statement accounts within each transaction cycle primarily relies on understanding internal controls and conducting related tests, including tests of controls and substantive tests of transactions For instance, if an auditor determines that control risk is low for transactions in the acquisition and payment cycle, further verification of related income statement accounts—such as utilities, advertising, and purchases—will mainly involve analytical procedures and cutoff tests However, some income and expense accounts may not undergo verification through these tests, while others require more extensive substantive testing Analyzing expense accounts entails the auditor reviewing the underlying documentation for individual transactions, using documents like invoices, receiving reports, purchase orders, and contracts, similar to those used in acquisition transaction tests.
INTRODUCTION TO PWC VIETNAM
History development of PwC
PricewaterhouseCoopers (PwC) is a leading multinational professional services network, recognized as one of the Big Four accounting firms alongside Deloitte, EY, and KPMG Operating under the PwC brand, the firm consists of partnerships worldwide, with PricewaterhouseCoopers International Limited in London serving as the coordinating entity for this global network PwC is responsible for managing the brand and developing policies and initiatives to ensure a unified approach in critical areas such as risk management, quality assurance, and strategic planning.
PwC, formed in 1998 through the merger of Coopers & Lybrand and Price Waterhouse, has roots tracing back to the 19th century In September 2010, the firm underwent a rebranding, adopting the shortened name PwC As of May 30, 2017, its legal name was updated to PwC Vietnam Limited Operating as part of a global network, PwC Vietnam is managed collaboratively with its counterparts in other countries, with headquarters located in the UK.
Over 20 years of operation, PwC has expanded its customer network to the entire 63 provinces and cities across the country and built good relationships with key officials industries as well as financial institutions and businesses in Vietnam Not only stop there, the relationship as well as the trust of foreign organizations in PwC Vietnam is increasingly strengthened and consolidated, which has helped PwC become a reliable destination for many types of customers.
Service lines
PwC Vietnam and PwC Global offer a range of services, including Deals and Consulting, tailored to meet the needs of specific customer groups such as private enterprises and individuals from Japan, Korea, China, and Taiwan.
Chinese and Taiwanese business services
Managing risks for organizations impacted by COVID-19
Data protection and privacy services
PwC's audit and assurance services enhance the financial performance and operational integrity of businesses by ensuring compliance with regulatory standards They assist organizations in improving external financial reporting in line with the Vietnamese Accounting System, Vietnamese Accounting Standards (VAS), and International Financial Reporting Standards (IFRS) Additionally, PwC supports companies in reporting non-financial information and strengthening corporate governance practices.
In today's business landscape, the importance of financial statements audits has surged, driven by heightened scrutiny and skepticism from investors These stakeholders demand greater reliability, robust oversight, and clear evidence of effective internal controls To meet these expectations, it is crucial for companies to ensure the completeness and accuracy of their financial information PwC's audit approach, recognized for its industry-leading practices, is specifically designed to cater to the unique size and nature of each organization.
PwC offers services for reviewing interim and annual financial statements, which provide less assurance than a full audit due to their reliance on inquiries with company personnel and analytical procedures on financial data For certain purposes, a review can be a sufficient alternative, offering a cost-effective and time-efficient option compared to a comprehensive audit.
Businesses occasionally require the expertise of a professional firm to meet specific needs or enhance their decision-making processes PwC collaborates with enterprises to identify their challenges and customize the necessary procedures Upon completion of the agreed-upon procedures engagement, PwC delivers a factual report outlining any exceptions found.
As the Vietnamese government enhances its legal and institutional framework, organizations must establish a robust governance, risk, and compliance culture capable of withstanding regulatory scrutiny This culture should align with company values, behaviors, and decision-making processes PwC acknowledges that each business possesses unique controls, systems, policies, and processes, reflecting the diverse nature of companies in various shapes and sizes.
PwC's Risk Assurance offers a comprehensive suite of interconnected services focused on risk management, controls, and assurance This includes internal audit, IT and cybersecurity risk assurance, corporate governance, performance assurance, business control advisory, business resilience, digital trust and cybersecurity, as well as Environmental, Social, and Governance (ESG) reporting The approach emphasizes a thorough evaluation of processes, policies, systems, and controls to provide innovative insights and solutions.
PwC Vietnam is recognized for its expertise in mergers and acquisitions (M&A), offering comprehensive support throughout the deal continuum Their services encompass strategy development, post-deal integration, and thorough due diligence across financial, tax, legal, market, and operational aspects Additionally, they assist in accessing capital markets, as well as valuing, negotiating, and structuring deals effectively.
Deals are an opportunity – for faster growth, stronger capabilities and dramatic transformation Harnessing this potential requires foresight that only comes from a deep fluency in deals
PwC adopts an innovative strategy to address your business's most significant challenges, focusing on reducing disruptions, enhancing impact, and uncovering new value In an ever-evolving landscape, fostering trust and resilience is essential for driving value and growth.
PwC is a global strategy consulting firm uniquely positioned to deliver a future built on differentiation tailored to each organization By combining powerful foresight with practical expertise, technology, and scale, PwC helps create transformative strategies from the outset Their Southeast Asia practice is finely attuned to the region's market dynamics, addressing pressing challenges effectively In an era of increasing volatility and transparency, developing robust risk management capabilities is crucial As shareholder and regulatory expectations rise, organizations face heightened pressure to cultivate the culture, processes, and infrastructure essential for effective risk management.
PwC can help businesses understand risk profile to drive greater predictability, reduced volatility of earnings, lower cost of control, more effective decision making and increased enterprise value
PwC stands out as the premier global provider of tax services, renowned for its extensive expertise and reputation in the field Clients choose PwC for its deep understanding of their businesses and the economic landscape, paired with specialized tax knowledge in Vietnam and numerous jurisdictions worldwide As Vietnam's tax environment grows more intricate, PwC is committed to assisting companies in navigating these complexities effectively.
identify and reduce Vietnamese and international tax risks;
understand and meet their compliance obligations;
implement tax strategies that complement their business and operational objectives;
resolve disagreements with tax authorities when they arise, and
manage tax accounting and reporting issues
Doing business & investing in Vietnam – Inbound services
Corporate income tax compliance & reporting
PwC Vietnam, as a member of the global PwC network, offers integrated expertise in legal insights, business acumen, and technological innovation, enabling businesses to focus on their future and discover new opportunities.
In today's rapidly evolving landscape, partnering with a legal expert who comprehensively understands business dynamics and leverages technology is crucial for effective decision-making It is essential to anticipate the effects of regulatory, economic, and political changes on businesses while developing strategies that ensure long-term resilience PwC's legal services provide the expertise needed to navigate these interconnected challenges, offering tailored solutions that align with your strategic goals.
Corporate compliance / entity governance compliance
PwC has introduced "The Owner’s Agenda," a strategic framework designed to assist enterprises in aligning their ownership and business strategies in a cohesive manner This initiative emphasizes the central role of enterprises in addressing key priorities, including urgent business objectives, networking opportunities, and legacy considerations.
Managing ownership presents a distinctive challenge for private businesses, differentiating them from other business types The "manage ownership" framework emphasizes four key components of an effective ownership strategy: Wealth, Governance, Continuity, and Purpose & Value.
As a private business owner, building a long-term strategy to drive and manage growth involves many aspects, from Strategy and Transformation, to Risk and Regulatory:
If a business is an European, Japanese, Korean, Chinese or Taiwanese company with operations in Vietnam looking to achieve long-term success, then PwC’s Foreign
Business Services were developed with them
Services we are focusing on include:
Organizational Structure of PwC
Figure 1: Organizational chart of PwC
Assurance department in PwC HCM
Figure 2: Hierarchy of assurance department in PwC HCM
At PwC, audit team assignments are determined by individual capabilities, experience levels, and the complexity of contracts Audit levels reflect staff knowledge and skills, with audit associates typically being recent graduates or individuals with 1-2 years of experience, including interns All team members at the same level possess comparable knowledge and expertise, ensuring a consistent quality of service.
In an audit engagement, the audit team is categorized into two primary levels: management and implementation The management level comprises the Engagement Leader (EL), who oversees the entire contract, the Quality Review Partner (QRP), responsible for quality monitoring, and the Team Manager (TM), who supervises the audit group The implementation level consists of the Senior In Charge (SIC), acting as the audit team leader, alongside other team members directly involved in the audit process.
Intern Associate Senior in charge Manager Senior
AUDIT PROCEDURES FOR GENERAL AND ADMINISTRATIVE
Auditing process of financial statements at PwC Vietnam
After many years of operation, PwC designed its own audit process as the basis for all financial statement’s audits, applicable to all PwC worldwide branch
The audit process has 5 main parts:
General understanding of the client and planning the audit (Understand and Plan)
Figure 3: Audit process in PwC Vietnam
• Understand the environment of entity
• Anticipate unsual aspect and risk
• Determine audit strategy to response risk
• Execute and evaluate results of control and substantive procedure
• Update preliminary assessments, changes to plan and subsequent event
PwC employs a unique approach grounded in Accounting Standards and International Auditing Standards, ensuring relevance and consistency across various countries and business types worldwide.
3.1.1 General understanding of the client and planning the audit
During this stage, the audit team reviews the documents supplied by the client, along with the company's regulations, to gain a comprehensive understanding of the accounting processes Additionally, the auditor assesses the client's internal control system through prepared questionnaires, direct surveys, interviews, and information gathering The audit team specifically aims to investigate the effectiveness of the internal control system in place.
Business environment of client and field of operation
Accounting standards, regimes and other regulations that the company applies, or has affect the business of the enterprise
Separate accounting policies of the enterprise
The company's operational goals and strategies and business risks
Assess the business situation and financial capacity of the unit
Reviewing new or significant changes in important contracts and agreements to identify risks of material misstatement
Clients often conceal the shortcomings of their operating systems and procedures, making it essential for auditors to leverage their professional skills effectively to extract valuable information from the client.
During the audit planning phase, establishing materiality is a crucial task that must be carried out by highly qualified and experienced auditors The determination of materiality relies on both qualitative factors, such as the industry and business situation, and quantitative factors, including profit before and after tax, net revenue, total assets, and sources of capital Additionally, the auditor's professional judgment plays a significant role in this process.
PwC Vietnam has 3 key levels of materiality:
Overall Materiality is the overall materiality of the financial statements, which is the maximum amount of error at which an investor's investment decision is affected Common
This ratio depends on a number of other factors, such as the effectiveness of the internal control system
Performance materiality is set below overall materiality to minimize the risk of errors, ensuring that the total impact of both uncorrected and detected misstatements remains within acceptable limits.
The de minimis level represents the minimum threshold of error that necessitates an adjustment entry, while any SUM value below this threshold indicates that any difference adjustment would be considered immaterial and unnecessary.
The SUM value is considered optimal when: SUM = 1% - 2% PM SUM is defined as 5% OM when PM is set to 50% OM or SUM is set to 10% PM
Leveraging their understanding of the client's business, auditors can pinpoint and assess events that might hinder their ability to effectively plan and execute the audit Concurrently, they identify possible misstatements within the organization, conduct an initial evaluation of control risk, and outline the audit strategy for each specific area.
International Standards on Auditing 300 (ISA 300) mandates auditors to create a comprehensive audit strategy that outlines the audit's scope, timing, and direction, serving as a framework for developing the audit engagement plan In formulating this overall audit strategy, auditors must carefully consider these key elements to ensure a structured approach to the audit process.
Determine the nature of the audit engagement and its scope;
Ensure reporting objectives to plan the time of the audit;
Based on professional judgment, consider material factors that have a direct effect on the audit team;
Determine the nature, timing, and extent of resources needed to participate in the audit
Audit risk assessment involves identifying and evaluating potential risks of material misstatement to create effective procedures that minimize audit risk to an acceptable level During this phase, auditors perform risk analysis to detect discrepancies, fluctuations, or inconsistencies in financial and non-financial data compared to the company's prior information, which may indicate a risk of material misstatement.
In the audit process, each section has defined objectives that must be achieved The auditor identifies these objectives and conducts the necessary procedures to gather evidence that supports the audit goals for each segment of the financial statement audit.
Due diligence involves sampling to review documents and related records to verify the occurrence and accurate recording of transactions PwC employs three distinct sampling methods to facilitate this process.
Targeted: sample has a value greater than PM
When conducting sampling, choose a sample based on an acceptable error threshold, typically set at 20% of the PM value Sampling is appropriate when the components of the sample size are valid equivalents that do not exceed the PM.
The Accept/Reject sampling method involves selecting a sample according to the item's specified sample size, primarily used to verify whether customer information aligns with actual discrepancies This approach focuses on the samples that remain after applying targeted sampling techniques.
Members will finalize their sections, after which SIC will conduct an initial review Following this, TM will perform a second review, identifying any errors that require correction and additional input, documented as coaching notes Members will then address and resolve these coaching notes.
SIC will engage with customers to address outstanding matters, including incomplete confirmation letters and unsigned management letters Once an agreement is reached with TM, SIC will reach out to the customer and provide a copy of the report for their review, facilitating the final agreement process.
Planning for audit engagement by PwC Vietnam at ABC Company
3.2.1 Overview of General and administrative expenses
General and administrative expenses (G&A expenses) encompass all costs associated with production, business activities, and administrative management within an enterprise According to Circular 200, G&A expenses include management staff salaries, costs for management materials, office supplies, fixed asset depreciation, taxes, fees, provisions for bad debts, expenses for outsourced services, and other miscellaneous expenses.
Businesses can enhance their management efficiency by establishing detailed accounts tailored to their specific production and operational needs, allowing for more effective expense tracking and control.
3.2.2 Establish the grounds for the audit engagement
Registered name (official name): ABC Vietnam Limited
Capital: In accordance with latest Enterprise Registration Certificate (ERC), the charter capital of 19,000,000 USD (equivalent to VND 352,454,600,211 at the date of registration) was fully contributed
ABC Vietnam Limited, a subsidiary of ABC Korea, specializes in manufacturing and exporting bags, purses, and suitcases, particularly women's handbags for renowned global brands Established in 2009, the company operates under foreign direct investment and aims to enhance Vietnam's economic development while promoting Vietnamese products in the international market To further its mission, ABC Vietnam has invested in a second facility in another region of Vietnam and is actively recruiting a skilled workforce.
Fiscal year starts on 1 st January and ends on 31 st December The period covered in this internship report is from 1 st Jan 2021 to 31 st Dec 2021
Accounting currency of the company’s financial statements are presented in VND (Vietnam Dong) and comply with Vietnamese Accounting Standards (VAS)
General ledgers (GL) and Trial Balance (TB) are utilized to keep track and supervise the changes of all accounts
The audit of corporate governance expenses aims to ensure that the auditor provides an opinion on the accuracy and fairness of the enterprise management expense recognition This process is essential to validate assertions regarding occurrence, completeness, accuracy, and cut-off, ensuring compliance with applicable financial reporting frameworks.
Occurrence: All business management expense transactions recorded in the income statement are actually incurred
Completeness: All actual arising business management expenses are reflected on the income statement
Accuracy: The figures of corporate management expenses are calculated correctly, the added data on the detailed books match the data on the ledger, accumulating and recording the correct amount
Cut-off: Administrative expenses recognized in the accounting period are incurred in that period and are consistent with the recognized revenue of the corresponding period
Presentation and disclosure: Corporate management expenses are presented in the financial statements, the notes to the financial statements are appropriate
After evaluating key factors such as revenue, profit after tax, gross profit, and equity, the Engagement Leader (EL) and Team Manager (TM) opted to calculate the average profit before tax from continuing operations over the past 3 to 5 years.
The determination of percentage values for each element relies on the auditor's assessment of material misstatements from prior audited financial years, coupled with current customer research For ABC Vietnam Limited, auditors have established the value of OM at 10% of profit before tax Over the last 3-5 years, the average profit before tax for the company has been VND 61,623,318,887.
Eventually, OM for fiscal year 2021 is determined as VND 6.162.000.000
The performance materiality (PM) is established by evaluating the historical context of minimal or absent audit adjustments during prior engagements, alongside the auditor's professional judgment regarding the potential for material misstatements in the current year's audit.
For the fiscal year 2021, EL and
TM decide to use the rate of haircut equal to 10% (means less than OM by 10%)
Finally, the PM of fiscal year 2018 is equal to 90% of OM, which is 5,545,800,000 VND
Similar to the determination of the above two levels of materiality, the auditor determines the SUM to be 10% OM, which is VND 616,000,000
3.2.2.4 Establish an audit engagement team:
The members for the fieldwork of audit engagement of ABC Company includes:
Short-term trade accounts receivable
Short-term prepayments to suppliers Provision for doubtful debts – short term
Other short-term receivables Intern
Provision for decline in value of inventories A2
Value Added Tax ("VAT") to be reclaimed SIC
Other long-term receivables Intern
Historical cost Accumulated depreciation Intangible fixed assets
Intern Investments in other entities
Short-term trade accounts payable
Intern Short-term advances from customers
Tax and other payables to the State SIC
Other short-term payables Intern
Provision for long-term liabilities Intern
- Undistributed post-tax profits of previous years
- Post-tax profits of current year
Table 1: Task allocation for balance sheet items
Revenue from sales of goods and rendering of services A2
Net revenue from sales of goods and rendering of service
Cost of goods sold and services rendered A2
Gross profit from sales of goods and rendering of services
General and administration expenses Intern
Net accounting profit before tax
Business income tax ("BIT") - current SIC
Table 2: Task allocation for Profit or Loss items
Search for unrecorded liabilities: Intern
Audit procedure of G&A expense by PwC for ABC Company
The Leadsheet serves as the first sheet in a financial report, offering a comprehensive overview of fluctuations between the previous and current periods It features a summary table at the top, detailing the client's name, the audited period, and the specific financial statement line item (FSLI) being presented By utilizing the Leadsheet, users can draw overall assessments and recognize trends in the changes observed during the covered period.
The leadsheet presents the unadjusted figures obtained by auditors from the client's Profit and Loss Statement, General Ledger, and Trial Balance Any adjustments made by the auditors are recorded in the Adjustment column to correct the figures in the Adjusted Current Period column In this case, since there are no adjustments, the Adjusted Current Period matches the unadjusted Current Period Comparing these figures to the previous year is crucial in the audit process, as any material variances must be investigated Additionally, recognizing fluctuations, even if immaterial, enhances auditors' professional skepticism and prepares them for potential unforeseen issues.
The audit procedure for General and Administrative (G&A) expenses must include a detailed breakdown of expenditures, as these expenses encompass various types with distinct characteristics Failing to differentiate these expenses can result in misclassification, potentially leading to significant errors in financial statements Consequently, this breakdown is an essential step in the auditing process for G&A expenses to ensure accurate financial reporting.
The breakdown is based on account number and description to put several expenditures having the same natures into groups of detailed expense The demonstration is shown in Figure 8:
Figure 8: Breakdown of G&A expense based on sub-account
The audit procedures for General and Administrative (G&A) expenses involve populating the Financial Statement Line Item (FSLI) with "G&A expenses." The G&A account, numbered 642, consists of multiple sub-account codes grouped into five main categories: 6421, 6423, 6424, 6425, 6427, and 6428 Each category contains specific sub-accounts that serve distinct financial purposes To clarify the rationale for transactions recorded in each account, detailed descriptions are provided for both the client's accountants and the auditors Given that ABC Vietnam Limited is an international enterprise, descriptions are required in both Vietnamese and English to accommodate various stakeholders The table illustrates the diverse types of expenditures categorized under G&A expenses.
6421: Expense for employees, bonus, annual leave, salary for expats, maternity leave, insurance, trade union fee
6423: Stationery, office tools, distribution of tools long-term prepayment
6424: Depreciation for machinary & equipment, transmission, furniture & office equipment, intangible assets
6427: Electricity cost, telephone cost, security cost, repairs and maintenance, bank charge, advertising, rental fees
6428: Other employee benefits, meal for expats, business trip & transportation, other expense
Figure 9: General Ledger of G&A expenses
Figure 10: Comparison of current and previous year with nature
To accurately assess expense variances between the current and previous years, it is essential to display figures from both years for each expense line These figures are obtained using the Excel formula SUMIF, which links to the General Ledger by referencing the Account Number column as the range, the corresponding cell in the Breakdown Account column as the criteria, and the Net column in the General Ledger as the sum_range This approach allows auditors to trace the amounts back to specific transaction vouchers and dates within the General Ledger Variances are presented in both absolute numbers and percentages, enabling experienced auditors to evaluate significant changes over time and identify material fluctuations In cases of notable movement, auditors should investigate the underlying reasons by interviewing clients or reviewing relevant documents to assess potential risks to the company's financial health Understanding the nature of costs is crucial, as it emphasizes the principle of "substance over form," providing a deeper insight into the expenses incurred.
Understanding nature and audit approach
The audit approach for various types of expenses is determined based on their specific nature For instance, the audit procedures for depreciation expense will focus on the Financial Statement Line Items (FSLI) related to Plant, Property & Equipment, and Intangible Assets Consequently, the responsibility for testing depreciation falls to the New Associate (A1), who is tasked with auditing the Plant.
Property & Equipment and Intangible as demonstrated in Task allocation table above
G&A expenses categorized as staff costs will be evaluated in the Payroll section, while expenditures classified as prepaid expenses will be assessed in the Prepaid Expense section The remaining responsibilities fall to the individual completing the task.
G&A expenses section and the audit procedure for them is Test of Details (ToD)
Figure 12: Summary of audit approach and reconciliation
After establishing the audit approach for General and Administrative (G&A) expenses, a summary table will be provided detailing the procedures for each expense type This table will include links to other relevant sections, enabling auditors to cross-check for any discrepancies in the work performed If any variance is deemed immaterial (below the specified threshold), the auditor may proceed without further action However, significant variances exceeding the threshold require investigation and potential adjustments, which fall under the responsibilities of the Senior Internal Consultant (SIC) and Team Manager (TM).
It is essential to verify every total number against the leadsheet to ensure accuracy, as the leadsheet figures are sourced from the client's trial balance and draft financial statements, while the breakdown comes from the client's general ledger If there is a discrepancy between these totals, it indicates either that the client has provided incorrect information or that there are weaknesses in their internal controls, preventing them from reconciling the figures In such cases, additional audit procedures become necessary, increasing the complexity of the engagement.
3.3.3 Test of Details for G&A expenses
In the breakdown section, selected G&A expenses will be assessed using a Test of Details (ToD) PwC has developed a template to determine the necessary sample size for testing Any sample with a value exceeding the Performance Materiality (PM) threshold must undergo Targeted Testing, as it is deemed material at the account level Conversely, the remaining population will typically be evaluated through a Haphazard sampling method, which does not follow a specific systematic order The process to complete the template consists of eight distinct steps.
Step 2: Define the Population and Sampling unit
Step 6: Perform Testing and Evaluate Results (Reference work performed / summarize results)
Step 8: Evaluation of Results The template is shown part – by – part by Figure 13:
Figure 13: Initial steps for testing G&A expenses
In Step 1, the account name (FSLI) refers to the G&A Expense being tested, with the coverage date set as December 31, 2021, marking the end of the audit engagement period The Total Population Amount represents the predetermined figure for testing within the G&A sector, as outlined in section 2.2.3.2 Additionally, the Number of Items indicates each transaction from the General Ledger that incurs costs and is classified under account 642.
In Step 2, any item exceeding the Performance Metric (PM) will undergo the Targeted Testing method, where the quantity of these items will be documented alongside their respective amounts Furthermore, all items are deemed material, ensuring that no item is overlooked in the assessment process.
NA is typed in the space of definition
In step 3, PwC defines misstatement as any discrepancy between supporting documents and recorded amounts that lacks a reasonable explanation The maximum tolerable misstatement is set at 20% of the total population, aligning with PwC's policies where tolerable misstatement typically equals performance materiality, prompting a "Yes" selection in step 4 However, if performance materiality exceeds 20% of the population, a "No" must be selected, and the maximum tolerable misstatement is capped at 20% of the population.
We expect no misstatement in the testing, so that Estimated Misstatement is 0.0%
The Desired Level of Evidence refers to the acceptable risk of misstatement in the evidence, with a preference for this risk to be low Once all fields are completed, the system will automatically determine the sample size required for auditors, resulting in a total of five samples to be selected.
Figure 14: Following steps for testing G&A expenses
PwC employs three sampling methods: Haphazard, Random, and Systematic However, they recommend using the Haphazard method for testing The auditor should select samples from GL 642, ensuring the number of samples aligns with the specified template.
Figure 15: Determine sample item to be test
Completing the audit procedure for G&A expense at ABC Vietnam Limited
After completing the review of G&A expenses, the auditor must verify that the figures in the Breakdown sheet align with those on the Leadsheet and ensure that the reconciliation with related sections is accurate The auditor should then assess the situation for the audited period in the Overall Comment area of the Leadsheet, highlighting any comparisons between the current and previous periods, along with explanations for any increases or decreases attributed to specific sub-expenses.
COMMENTS FOR THE PROCESS AND EXPERIENCED AFTER
Comment on the audit procedures for G&A expense at PwC Vietnam
With over twenty years of experience, PwC Vietnam Auditing Co., Ltd has established a strong reputation in the auditing sector, enhancing the transparency and reliability of financial statements and effectively aiding investors in their decision-making processes.
PwC Vietnam has developed a comprehensive evaluation questionnaire to assess the internal control system This structured questionnaire is designed for each cycle and item, enabling a thorough understanding of the internal control framework The integrated template facilitates auditors in quickly conducting a preliminary assessment of the internal control system for accounts receivable, ensuring that no critical issues are overlooked.
The Test of Detail (ToD) template software enhances the objectivity and reliability of audit sample selection, including customer and supplier sampling, confirmation letters for receivables and payables, and document reviews of control procedures Additionally, the upgraded Excel software now features specialized functions tailored for audit purposes.
A team of enthusiastic and skilled auditors, fresh graduates from reputable universities, brings valuable experience in training human resources for the accounting and audit sectors They are eager to learn, progressive in their approach, meticulous in their work, and excel in collaborative environments.
During the peak season for financial statement preparation, from December to March, PwC experiences a significant increase in workload due to heightened demand for auditing services This surge often results in insufficient staffing, leading to employee overload, which adversely impacts morale, health, and performance The challenges of this busy period affect not only staff but also leaders at all organizational levels.
Customer information security is a top priority within the Aura system, where access to customer data is tightly controlled and restricted to authorized leadership members However, once granted access, these individuals have unrestricted capabilities to copy and edit personal data, which raises significant concerns about the potential for customer information leakage.
Evaluation of internship report
The audit process for general and administrative expenses at ABC Vietnam Limited closely reflects actual practices, with the comprehensive report accurately documenting approximately 95% of the work conducted by PwC.
The report employs straightforward terminology, enabling readers to easily grasp the audit procedures, visualize the working paper process, and understand the testing tools related to general and administrative expenses.
During the peak audit season, the author faces the challenge of balancing fieldwork with the urgent completion of the internship report This time constraint, combined with limited capacity, experience, and skills, results in a report that may lack clarity, potentially leading to misunderstandings for readers.
Experience after the internship program
Interning at PwC Vietnam Co., Ltd., one of the largest audit firms globally, offers a valuable opportunity to collaborate with seasoned professionals The insights and experiences gained during this internship are instrumental in shaping the author's career and enhancing their understanding of the auditing field.
Taking the initiative to ask when you don't know and be willing to help people
When faced with a new challenge, the author first conducts thorough research within their capabilities before seeking assistance This approach not only saves time for the instructor but also demonstrates a proactive attitude towards problem-solving.
To facilitate efficient reporting by the audit team leader, priority must be given to the breakdown and disclosure sheets It is essential to implement procedures for testing documents such as contracts and invoices, ensuring that all necessary materials are collected beforehand After the fieldwork week, requesting additional documents can become challenging and inconvenient for auditors Furthermore, if clients consent to send scanned documents via email, they may exhibit dissatisfaction and a lack of cooperation.
Time management is very important to keep the work progress, allocate time efficiently to avoid too much simultaneous workload that affects the health
Effective communication with customers is essential for fostering cooperation Practicing polite and respectful dialogue, without being condescending, is a vital skill that professionals must develop throughout their careers.
Enhance your Excel skills by mastering keyboard shortcuts for efficient auditing, utilizing pivot tables, and employing essential functions such as SUMIFS, VLOOKUP, and SUBTOTAL This approach will significantly save you time and improve your productivity.
During the internship at PwC Vietnam, the author gained valuable insights into auditing general and administrative expenses for ABC Vietnam Limited This experience allowed the author to apply theoretical knowledge acquired in the classroom to real-world situations, enhancing practical skills and providing a clearer direction for future career development.
Auditing plays a crucial role in enhancing the transparency of financial information and providing essential insights for businesses to foster growth General and administrative expenses are significant items that often represent a large portion of a company's costs and carry inherent risks, making them susceptible to fraudulent activities such as expense inflation to lower tax liabilities or underreporting costs to boost profits These expenses are closely tied to business performance, leading to potential manipulation of revenue and profit figures Consequently, they are a focal point for auditors and auditing firms alike Through an internship at PwC Vietnam Co., Ltd., the author gained valuable insights into the policies and regulations governing the auditing of general and administrative expenses, as well as an understanding of their implementation within the global PwC framework.
This article aims to highlight the strengths that auditors should maintain and develop, as well as the limitations that require improvement It serves as a valuable reference for both current and aspiring auditors, providing insights that can enhance their professional practice.