Khóa luận tốt nghiệp Kế toán kiểm toán: Audit procedures for payroll and personnel cycle by PwC Vietnam

2.2 Audit procedures for financial statements by PwC Vietnam2.2.1 Initial engagement procedures2.2.2 Understand the entity and its environment2.2.3 Assess risks 2.2.4 Risk and response2.

UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ACCOUNTING AND AUDITING

General information:

Full name: Nguyen Ngoc Ninh

Class: K20405CA Student ID: K204050277

Date of birth: 10/06/2002

Lecturer: Bui Anh Thanh

Internship firm: PwC Vietnam

Address: 29 Le Duan, Ben Nghe Ward, District 1, HCM City

Department: Assurance

Person responsible for guiding interns:

Position: Assurance internship

Internship schedule: 18/12/2023 - 15/03/2024

Content of internship diary:

Stt Tuan Nội dung thực tập Đánh giá của SV về

kết quả của công việc

thực tập

1 18/12/2023 to | There are totally 7 days for training - Build relationships

29/12/2023 - Day 1: Introduction to PwC, culture, with other interns.

policies, dressing style; distributing - Review basic auditlaptops, tools; building; intern foundations

- Day 2, Day 3, Day 4, Day 5: audit software andknowledge review; introduction to supporting tools

PwC audit procedures for cash; - Get familiar with

prepayment; AR; AP; G&A; revenue; fim culture

operating expense; payrolls

- Day 6, Day 7: guide to use auditsoftware - Aura, Connect,

21/12/2024

to There are around 2 weeks for audit

engagement of 1 client, includingfieldwork time and office hours:

- 7/1/2024 (Sunday): overtime workingfor being directly trained by SIC

- 8/1/2024 to 9/1/2024: fieldwork inTay Ninh - choosing testing sample,gathering documents and doing work

- 10/1/2024 to 11/1/2024: fieldwork inDong Nai - choosing testing sample,gathering documents and doing work

- 12/1/2024: office hours - choosingtesting sample, doing work

- Observe how Seniors

in charge haveconversations withclient staff

- Build relationshipswith Seniors and otherteam members

- Learn how to usephotocopy and scanmachine

- Learn how to choosetesting samples and

gather which type of document as

supporting evidence.

- Learn how todocument work andreconcile receivedinformation

Họ và tên SV thực tapi ccc cece eee eee n eee eaeenseeesseeseeeeseeesseeeeeeeeseeeegs

MSSV: Lớp: Trường Đại học Kinh tế - Luật

Đã thực tập tại Phòng: - c2 22 eee ng TH Tnhh nh key

Từ thời gian: từ ngày / /20 đến ngày / /2 cece cecseesessessessessesesseseens

Nhận xét chung:

¬— , ngày tháng năm

Xác nhận cua đơn vi thực tập

(Ký và ghi rõ họ tên)

PHIẾU ĐÁNH GIA BAO CÁO THỰC TẬP - Đề tài: KIEM TOÁN

Điểm từng phần

Chương mở đầu

Thực tế tại doanh

nghiệp

Không đạt yêu cầu

Nội dung chương mở đầu không đầy đủ, không xác định được mục

tiêu, đôi tượng và phạm vi của đề tài.

Chỉ sao chép giấy làm việc.

Không có quan sát, diễn giải của

người viết.

HOẶC

Có trình bày các thủ tục kiểm toán, nhưng không day đủ và logic.

Chưa có sự liên hệ giữa mục tiêu

kiểm toán, các thủ tục thực hiện và kết

quả thực hiện các thủ tục.

Không có giấy làm việc minh họa.

Cần cải thiện Chương mở đầu gồm day đủ nội

Đạt yêu cầu

dung, xác định được mục tiêu, đối tượng và phạm vi của đề tài Các góp ý của GVHD đa số được cải

thiện —_

Một số điểm trình bày chưa logic.

Trình bày tương đối đầy đủ các thủ tục kiểm toán, có sự liên hệ với mục tiêu kiểm toán và các nội dung

lý thuyết đã trình bày nhưng còn thiếu logic ở một vài điểm.

Không giải thích được tại sao

KTV thực hiện/ hoặc không thực

hiện một thủ tục.

Không trình bày thủ tục kiểm

toán thay thế trong trường hợp kết

quả thủ tục không đạt mục tiêu kiểm

toán.

Một số giấy làm việc và số liệu

không được minh họa.

Nhiều số liệu được trình bày thừa, thiếu hoặc chưa khớp.

Trình bày đầy đủ các thủ tục kiểm toán, có sự liên hệ với mục tiêu kiểm toán và các nội dung lý

thuyết đã trình bày.

Có giải thích tại sao KTV thực hiện/ không thực hiện một thủ tục hoặc có trình bày thủ tục

kiểm toán thay thế trong trường hợp kết quả thủ tục không đạt mục tiêu kiểm toán Tuy nhiên, vẫn còn một số điểm chưa logic;

hoặc một số nội dung chưa cải thiện hết theo yêu cầu của GV mà

không được giải thích li do.

Giấy làm việc và số liệu được minh họa đầy đủ Một vài chỗ hơi thừa, thiếu hoặc chưa khớp.

Có giải thích tại sao KTV thực hiện/ không thực hiện một thủ tục

và có trình bày thủ tục kiểm toán thay thế trong trường hợp kết quả thủ tục không đạt mục tiêu kiểm

toán với rất ít sự hỗ trợ của giảng

doanh nghiệp đầy đủ sài hoặc trình bày không có chọn lọc đủ, thể hiện sự am hiểu về ngành

nghé, lĩnh vực hoạt động va cơ câu

của doanh nghiệp

0-0.4 0.5- 0.8 0.9— 1.0

H.0

Cơ sở lí thuyết Không trình bày những vấn đề lý Trình bày cơ sở lý thuyết có Trình bày cơ sở lý thuyết có Trình bày đầy đủ các vấn đề

thuyết cơ bản của van đề nghiên cứu | chọn lọc, phù hợp với dé tài nghiên |chọn lọc, phù hợp với dé tài | liên quan đến nội dung nghiên cứu.

hoặc trình bày không có sự tổng hợp | cứ Tuy nhiên, một vài điểm chưa có | nghiên cứu Có sự kết nối rõ ràng | Có sự tổng hợp, so sánh, phân tích

và chọn lọc sự kết nối tốt Còn một vài lỗi sai | trong các vấn đề trình bày Rất ít| hợp lý và mang tính thuyết phục

trong nội dung lỗi sai nội dung cao.

0-0.4 0.5 - 0.6 0.7-0.8 0.9- 1.0

H.0

Điểm từng phần Không đạt yêu cầu

Nhận

nghị

xét, Nhận xét, kiến nghị không liên

quan đến vấn đề nghiên cứu HOẶC Nhận xét, kiến nghị còn chung chung, chưa cụ thé Chưa liên quan trực tiếp đến vấn đề nghiên cứu.

Nhận xét có liên quan đến đối tượng của đề tài nhưng có mang tính rập khuôn Kiến nghị còn chung chung, chưa thực tế.

Nhận xét có liên quan đến vấn đề nghiên cứu cụ thể Có sự

so sánh giữa thực trạng diễn ra ở doanh nghiệp và lý thuyết Một số kiến nghị gắn liền với vấn đề cụ

trình Hình thức trình bày không phù

hợp với yêu cầu chung phù hợp Bố cục phù hợp Còn mộtHình thức trình bày nhìn chung

số lỗi chính tả, lỗi trình bay.

0-0.4 0.5 - 0.6 0.7-0.8 0.9— 1.0

1.0

Kĩ năng quản lý Thường xuyên trễ các hạn nộp Trễ hạn một số lần nộp bài quá Luôn nộp bài đúng hạn Tự| Luôn nộp bài đúng han Tự lập

công việc bài quá trình trình lập kê hoạch, quản lý thời gian và | kê hoạch, quản lý thời gian và tìm

_ SV chỉ làm việc dưới sự hướng SV có thé tự quản lý thời gian |tìm số liệu độc lập, dưới sự | số liệu độc lập.

dẫn lặp lại của GV và tìm số liệu độc lập Tuy nhiên, |hướng dẫn của GVHD khi can Luôn chủ động đưa ra giải

Quá trình thực tập không đạt yêu | vẫn cần sự nhắc nhở của GVHD thiết pháp cho các vấn đề khó khăn một

cầu của đơn vị thực tập Nhận được phản hồi tích cực từ Nhận được phản hồi tích cực | cách độc lập

-đơn vị thực tập, với một số điểm | từ -đơn vị thực tập Nhận được phản hôi tích cực cần cải thiện từ đơn vị thực tập.

0-0.4 0.5 - 0.6 0.7-0.8 0.9— 1.0 _

1.0 Tinh thần, thái độ Không tuân thủ nội quy Không nỗ Thường xuyên gặp GVHD, nhưng đôi lúc không tập trung cho Luôn thể hiện nỗ lực và cam

làm việc lực/ rất ít nỗ lực trong việc hoàn thành | BCTT kết với BCTT.

BCTT.

0-0.4 0.5-0.8 0.9-1.0

1.0 TONG

1 Necessity of the topic

2 Objectives of the topic

3 Subject and scope of the topic

4 Method of the topic

5 Structure of the topic

CHAPTER 1: INTRODUCTION TO PWC VIETNAM

1.1 Global standing and development history of PwC Global1.2 History of establishment and development of PwC Vietnam

1.3 Core values

1.4 Lines of services and industry-focused services

1.5 Business situation and customer profile

1.6 Organizational structure of PwC Vietnam

CHAPTER 2: AUDIT PROCEDURES FOR PAYROLL AND PERSONNEL CYCLE

BY PWC VIETNAM AT ABC COMPANY

2.1 Theoretical framework for audit procedure

2.1.1 Definition of payroll2.1.2 Components of payslip2.1.3 Tax resident and tax non-resident

2.2 Audit procedures for financial statements by PwC Vietnam

2.2.1 Initial engagement procedures2.2.2 Understand the entity and its environment2.2.3 Assess risks

2.2.4 Risk and response2.2.5 Execute audit engagement2.2.6 Update preliminary assessments, changes to plan and subsequent events2.2.7 Completion procedures

2.3 Audit procedure for payroll and personnel cycle by PwC Vietnam at ABCCompany

2.3.1 Key areas of fraud risks when auditing payroll and personnel cycle

2.3.2 Illustrate audit procedures for payroll and personnel cycle by PwC Vietnam

at ABC Company

2.3.2.1 Identify and assess risks2.3.2.2 Establish material level2.3.2.3 Execute audit of payroll and personnel cycle2.3.3 Evaluation of audit results

2.4 Comparing with XYZ Vietnam Company

CHAPTER 3: COMMENTARY AND RECOMMENDATION

3.1 General commentary on PwC’s audit procedure

3.1.1 Advantages3.1.2 Difficulties3.2 Commentary on PwC’s audit procedure for payroll and personnel cycle

3.2.1 Advantages3.2.2 Difficulties3.3 General recommendation on PwC’s audit procedure

3.4 Recommendation on PwC’s audit procedure for payroll and personnel cycle

CONCLUSION

LIST OF FIGURES

Figure 1: Overview of grades and team roles

Figure 2: PwC audit procedures

Figure 3: PwC risk assessment process

Figure 4: Control environment

Figure 5: Risk assessment

Figure 6: Information system and communication

Figure 7: Monitoring internal control system

Figure 8: Materiality level

Figure 9: Leed schedule/ Leed sheet

Figure 10: Breakdown

Figure 11: Check posting

Figure 12: Recalculation

Figure 13: Test joiner-leaver

Figure 14: Test payment

Figure 15: Reasonableness test

Figure 16: Test provision for severance allowance

Figure 17: Reconcile with other sections

Figure 18: Leadsheet - XYZ Vietnam

Figure 19: ToD Form: Test Joiners - FSLI

Figure 20: ToD Form: Test Leavers - FSLI

Figure 21: ToD Form: Test Staff cost payment - Payable to employees FSLI

Figure 22: General ledger

LIST OF TABLES

Table 1: PwC Vietnam’ s office information

Table 2: PIT rate for employment income for residents

Table 3: SI/HI/UI contribution rates

Table 4: Inherent risks related to employee costs in 3 stages and their assertionsTable 5: Serverance allowance’s subjects

CAAT Computer assisted audit techniques

CD/WS Control deficiencies/Weaknesses

EGA Evidence gathering activities

EL Engagement leader

FSLI Financial statement line items

G&A General and administrative expense

QRP Quality review partner

SIC Senior in charge

SIHIUI Social insurance, health insurance and unemployment insuranceSUM Summary of uncorrected misstatements

TB Trial balance

TM Team manager

TOC Test of control

1 Necessity of the topic

In today’s world, there is less barrier for capital markets and money resources topenetrate into a country, a region or a company The increasing investment needrequires more reliable sources of information to enhance appropriate decision-making

by investors Among this, financial statements are considered as a useful tool to assess

a corporation’s financial health by taking a snapshot of financial position at the end of reporting period, reflecting financial performance during a period of time and the cashflow However, the management who is responsible for preparing financial statementshas more internal information than the investor, this causes an agency problem whichnegatively affects the efficiency of the market Along with asymmetric information,management also has other motives to manage the financial statements to benefitthemselves In this context, the independent role of external auditors is very important

to increase the transparency and truthfulness of information presented in reports, andcreate trust for financial statements’ users

Besides shareholders and investors, the tax authority also concerns about thereliability of these reports because they directly affect government income Manycompanies have reduced tax payment through increasing expenses, namely wages andsalaries expense Payroll expense constitutes a large amount of expense to operate abusiness, changes in number of employees are continuing; therefore, it is highlysusceptible to fraud to make fictitious payments to employees who have left or non- exist employees.

For the above reasons, the learners decide to choose the topic “Audit procedures forpayroll and personnel cycle by PwC during the internship period to research andcompare between knowledge in books and reality

2 Objectives of the topic

- Describe audit procedures at PwC Vietnam

- Describe audit procedures for payroll and personnel cycle at PwC Vietnam

- Compare between knowledge in school and reality and then make suggestions

3 Subject and scope of the topic

- Subject of the topic: the process of auditing payroll and personnel cycle at PwC andapplication to ABC Company

- Scope of the topic: ABC’s financial statements for the year ended at 31/12/2022 It isworth noticing that PwC has high standards and strict procedures related to clients’

4 Method of the topic

- Collection method of data and information: search related documents and records tounderstand PwC’s audit procedures in reality

- Analysis, synthesis and and observation method: based on theoretical bases, authorcollects data and on-hands experience when directly conducting audit and observingexperienced colleagues

- Interview method: discuss and ask questions to experienced staff or customers

5 Structure of the topic

The internship report will be divided into 3 chapters:

- Chapter 1: Introduction to PwC Vietnam

- Chapter 2: Audit procedures for payroll and personnel cycle by PwC Vietnam at

ABC Company

- Chapter 3: Commentary and recommendation

CHAPTER 1: INTRODUCTION TO PWC VIETNAM

1.1 Global standing and development history of PwC Global

PwC, along with Deloitte, EY and KPMG, is considered as a Big Four in accounting and auditing services Having had offices in 152 countries with more than 328,000employees, PwC is a leading professional services network worldwide This networkdoes not form a global partnership or a multinational corporation, but consists ofentities with different legal status A strong foundation in client services dates back to

the mid 19" century in London.

- In 1849, Samuel Lowell Price established his own business

- In 1854, Cooper Brother was set up

- Price, Holyland and Waterhouse joined in a partnership in 1865.

- In 1898, Lybrand was formed

- Coopers and Lybrand merged in 1957.

- The final merger between 2 largest giants at that time, Price Waterhouse and Cooper

& Lybrand, created PricewaterhouseCoopers, which was later shortened to PwC tofacilitate its global growth.

1.2 History of establishment and development of PwC Vietnam

PwC Vietnam set up 2 offices at Hanoi and Ho Chi Minh City in 1994 It operates as asingle-member limited liability company The company’s labour workforce is up to1,200 Vietnamese and foreign people with in-depth knowledge and skills in diversefields PwC Vietnam also has a 100% foreign-invested law enterprise in Vietnam, which was licensed by the Ministry of Justice.

Table 1: PwC Vietnam’ s office information (Source: PwC Vietnam, 2023)

Ho Chi Minh Office Ha Noi Branch

Suite 801-804A, 8th Floor,

ị Saigon Tower, 29 Le Duan

Address ¡ Street, District 1, Ben Nghe

Room 1609 — 1610, 16th Floor, Keangnam Hanoi Landmark

Tower, Lot E6, Cau Giay UrbanWard, Ho Chi Minh City, Area, Me Tri Commune, Nam Tu

: Vietnam Liem District, Hanoi, Vietnam ¡

Summit held in Da Nang Vietnam, PwC MYVN was an exclusive global Knowledge

Partner

1.3 PwC purpose and Core values

Company purpose is to “Build trust in society and solve important problems.”

- Unholding professional standards

- Adhering to applicable laws and regulations

- Fulfilling ethical obligations while delivering high quality, innovative works

Through a network of technology-enabled innovators, PwC is committed to deliverthe best customer experience from setting to implementing strategy and improvetransparency, trust and integrity of client business practices This purpose is supported

by 5 core values to create differentiated values:

Act with integrity

- Expect and deliver high-quality service outcomes

- Know that doing the right thing is the right thing to do, even in challengingsituations

- Make decision as if to put personal reputation at stake

- Understand individuals and their concerns

- Recognize individual values and contributions

- Support mutual growth

Work together

- Collaborate, share and integrate ideas, knowledge and information

- Give and ask for feedback and room for improvement

Reimagine the possible

- Be open-minded and encourage innovation

- Be willing to challenge the status quo

1.4 Lines of services and industry-focused services

With rich specialist resources, combined with deep insight into Vietnam market, PwC offers 6 main lines of services (LOS) for all-size client businesses.

Audit and Assurance Advisory Deals

Legal Services Consulting Services Internal Firm Services

1.4.1 Audit and Assurance

Services of Audit and Assurance LOS includes External audit, Internal audit, Review

of Financial information, Risk assurance, Corporate Governance, ESG Reporting,Capital Market Services ,

1.4.2 Advisory Deals

PwC focuses on helping clients to understand and reduce risk, maximize their return

on investments and avoid deals they should not make This includes Transactionservices, Valuation, Deals strategy, Capital projects and Infrastructure,

1.4.3 Tax Services

PwC offers advice and assistance in Transfer pricing, Tax dispute resolutions,Corporate income tax compliance & reporting, Customs & international trade, Taxtechnology, Doing business & investing in Vietnam,

1.4.6 Internal Firm Services

Internal Firm Services appreciates diversity, quality and social responsibility andseeks the ways to connect the entire organization.

Through widespread cultivated relationships and experiences, PwC is confident totruly understand client businesses The teams are organized by the following areas (1) Banking & capital markets, (2) Financial services, (3) Engineering & construction, (4)Industrial products, (5) Energy, utilities & resources, (6) Pharmaceuticals &healthcare, (7) Real estate, (8) Retail & consumer, (9) Technology, (10)Telecommunication.

1.5 Business situation and customer profile

2023 is a challenging year for all businesses to survive and grow, PwC clients haveexperienced problems that they have never seen before This creates challenges aswell as opportunities for PwC to strengthen its position in the eyes of clients.

Global PwC can be considered to have “biggest” customers among 4 Bigs, for example, Bank of America, Goldman Sachs, Prudential, IBM, Ford, In Vietnam, PwC is characterized by customer profile dominated by Foreign Direct Investment(FDI) companies At the present, Vietnam has witnessed a large wave of investmentfrom multinational corporations in the semiconductor chip industry, this can open abright future for PwC Vietnam

1.6 Organizational structure of PwC Vietnam

Engagement Leader (EL)

A

Director,

Team Manager (TM)

Team Members

Figure 1: Overview of grades and team roles

From an external view of the career ladder, PwC has 7 steps which require different years of experience, qualification and capabilities On the other hand, in an audit engagement there are 3 ranks, engagement leader with highest position, team manager,senior in charge and finally team members Team members can also include interns

Depending on nature, budget and characteristics of individual engagement, there areideally 1 SIC, 2-3 staff and 1 intern in one audit team Due to limited experience,interns usually handle the easiest parts, such as cash, account receivables, accountpayable, equity and other operating income/expense Additionally, interns can supportthe team with backing up documents, chasing confirmation letters and admin work.Associates may work closely with client accountants and other departments to carryout audit procedures SIC is responsible to manage the whole audit team, including associates and interns They have to cover all parts of financial statements, guide andreview work of team members and contact directly with TM TM is right signer and

EL is left signer They maintain relationship with client and ensure the audit work isperformed appropriately and efficiently.

2.1 Theoretical framework for payroll audit procedure

2.1.2 Components of a payslip

Payslip is an essential document for individuals to investigate their earnings, benefits, deductions and personal income tax for a specific period of time, usually monthly.While, payroll is a larger system that employers use to keep track of wages andsalaries-related items for all employees

- (A) Gross salary is an individual salary before being deducted This amount caninclude statutory deductions and voluntary contributions as well

- (B) Benefits for tax purposes are any cash remuneration and benefits-in-kind whichare not listed in point b clause 2 Article 2 of Circular 111/2013/TT-BTC Someexamples of items not subject to personal income tax (PIT):

+ Payments for telephone charges and stationery costs

+ Training fees+ Mid-shifts meals, lunch (if paid in cash, limited to 730.000 VND/person/year)+ Office clothes (if paid in cash, limited to 5 million VND/person/year)

+ Transportation to and from work+ Allowances / benefits for wedding, funeral (limited to average monthly salary)+ Others

- (C) Tax exemptions, for example:

+ Overtime premium (only amount above normal wage)

- (D) Taxable income: income left after deduction, which is subject to PIT

D=A+B-C

- (E) Tax deductions include:

+ (E1) Social, health and unemployment insurance (SI, HI, UD) are deductible forPIT This amount is equal to 10.5% gross salary Voluntary contributions to pensionschemes can also be deducted (subject to cap).

+ (E2) Donations for humanitarian purposes, social assistance, educationencouragement for approved charities.

+ (E3) Tax allowance include personal allowances for all tax residents (VND 11million/month) and dependant allowance (VND 4.4 million/month/per dependent)

More than 960 More than 80 35%

- (H) Union fee paid by employees

- (I) Net salary is amount of money transferred to employees’ bank account

I=A-E1-G-H

2.1.3 Residents are people who can meet one of following criteria:

- Living in Vietnam for 183 days or more in a calendar year or 12 consecutive monthsfrom the arrival date

- Having a permanent residence in Vietnam and unable to prove tax residence in another nation

- In case, individuals do not meet any requirement, they are considered as residents and subject to a flat PIT rate of 20% on employment income

non-2.1.4 Compulsory contributions paid by employers

- These expenses are not reflected in employee’s payslip, but they affect wages andsalaries expenses of the company

Table 3: SI/HI/UI contribution rates (Source: PwC Pocket Tax Book, 2023)

TS

Employee 8% 1.5% 1% 10.5%

Employer 17.5% 3% 1% 21.5%

2.1.4 Management assertions

Management assertions Description

Existence/ Occurrence The recorded payroll transactions in FSs happened and

existed.

Completeness All payroll transactions that occur are fully recorded.

Accurac Wages and salaries expense, SIHIUI and PIT are

y accurately calculated and deducted.

Valuation Provision for severance allowance is appropriate

ar Payable to employees, tax payable and other payables

Right and obligation (on behalf of employees) are properly reflected.

Cut-off Wages and salaries expenses must be recorded as they

incur rather than cash is paid out

Presentation and disclosure

Wages and salaries expense must be presented to appropriate account, direct labor cost, G&A expenseand insurance expense

2.2 Audit procedures for financial statements by PwC Vietnam

According to 2023 Global PwC Audit Guide, audit procedures can be summarized in

04 Risk and

Figure 3: PwC risk assessment process (Source: Global PwC Audit Guide (internalsource))

2.2.1 Initial engagement procedures include:

Ensuring PwC professionally qualified to act as an independent party: includespersonnel rotation, addressing independent threats from fees charged for both auditclient and non-audit client, impacts of client mergers and acquisition, and situationwhen audit clients become public interest entities,

Performing engagement acceptance or continuance: is supported by a softwaretool known as A&C (acceptance and continuance)

Mobilizing engagement team: requires understanding respective roles ofengagement leader (EL), team member (TM), quality review partner (QRP), teammembers and necessary experts

Drafting and completing engagement letters

2.2.2 Understand the entity and its environment

First, auditors will conduct risk assessment procedures to identify and assess susceptibility to material misstatement, which provides foundation for designing andimplementing risk responses Sources of information, such as inquiries ofmanagement, observation and inspection, prior experience, engagement team discussion, can be utilized.

Second, auditors investigate to understand the entity and its environment, and applicable financial reporting framework as well As a result of this, business risks can

environment In the case of complex IT environment, risk assurance shall participate

in the audit

2.2.3 Identify and assess risks

Identify and assess risks of material misstatement, and determine relevantassertions and significant FSLI This will be assessed at both financial statement leveland assertion level through evaluating likelihood and magnitude of potentialmisstatement

Next, auditors will perform overall evaluation of all risk assessment activities

Because risk assessment process is continuous and dynamic gathering, updatingand analyzing information, revision of risk assessment is necessary when newcontradictory information appears

2.2.4 Risk and response

Once understanding of client business and its environment are clear, and risk hasbeen identified and assessed, auditors develop an overall audit strategy and detailsaudit plan as well In this audit plan, nature, timing and extent of controls testing,substantive analytics and test of details are determined to address risks of material misstatement The establishment of audit strategy and plan are not necessarily discrete

or sequential processes, new information is considered to decide whether they needadjustment.

2.2.5 Execute audit engagement

In this stage, professional scepticism and professional judgement are applied to doEvidence Gathering Activities (EGA) EGA is combination of test of control (TOC)and substantive procedures:

Execute and evaluate results of control testing: design and operational efficiencyare both considered to evaluate reliability of internal control system Auditor acceptsthat a control is achieving its objectives when there are no found negligible exceptionswhich is a matter of professional judgement If actual number of exceptions found ishigher than negligible, auditors will consider whether additional testing is needed tosupport original result is not representative or resort to full substantive procedure

Execute and evaluate results of substantive procedure: includes method of test ofdetails (TOD), external confirmations and testing reconciliation These are supported

by Computer Assisted Audit Techniques (CAATs)

- In TOD, auditors can choose among 3 methods:

+ Targeted testing: tested items are selected due to some characteristics, for

example, high value or high risk items In this testing, physical examination, externalconfirmation or re-computation can be used

+ Accept-Reject testing: is for testing a particular attribute which is not monetaryvalue Before performing accept-reject testing, controls testing, substantive analyticalprocedure and targeted testing should be considered

+ Audit sampling: is appropriate testing method for a monetary value presumingthat sufficient evidence are not obtained by targeted testing In PwC, non-statisticalsampling is more preferred than statistical sampling

- External confirmation for bank confirmations and account receivableconfirmation

- Testing reconciliation: is used to compare differences between general ledgeraccount and subsidiary ledger (control account reconciliations) To be effective,reconciliations need to be complete (accounts for all differences) and performed gross(netting off can eliminate transparency)

2.2.6 Update preliminary assessments, changes to plan and subsequent events

Based on above audit works and obtained information and evidence, auditors conclude possibility of fraud or illegal acts, going concern assumption, perform subsequent events review Subsequently, auditors will estimate whether there arereasons for significant changes to audit strategy and audit plan

2.2.7 Completion procedures

In this stage, auditors will summarize misstatements and consider their impacts

on whole financial statements, summarize and evaluate internal control deficiencies,conclude analytics performance, and then determine appropriate audit reports to beissued There will be continuing meetings and discussions with audit committee andthose charged with governance of clients.

2.3 Audit procedure for payroll and personnel cycle by PwC Vietnam at ABCCompany

2.3.1 Key areas of risks when auditing payroll and personnel cycle

Table 4: Inherent risks related to employee costs in 3 stages and their assertions

Inherent risks Assertions

The company may pay for employees E - Existencewho have left or employees before they

Calculating wages and actually start their work.

salaries

The company may pay employees too A - Accuracymuch money

Recording wages and The various elements of pay might not | A - Accuracy

salaries, and deductions | be recorded correctly in the payroll.

be reflected in the cash at bank account.

Pay might not be recorded correctly in A - Accuracythe nominal ledger C - Completeness

E -Existence

PD - Presentationand Disclosure

Payment of wages and People who are not employees are paid | E - Existence

salaries Employees are not paid C - Completeness

Being aware of common inherent risks and their related management assertions,auditors will be more conscious to signs of risks during fieldwork This is basis forgiving more reasonable and reliable audit assessment about financial statements of the

company.

2.3.2 Illustrate audit procedures for payroll and personnel cycle by PwC Vietnam

at ABC Company

2.3.2.1 Identify and assess risks

In order to identify and assess risks, auditors should gain a broad information and understanding of the entity, such as the nature of business, its industry, accounting

policies, management’s philosophy and operating style

General knowledge about ABC Company

- Business name: ABC Limited

- ABC Limited is a local company It has operated since 2002 in the plastic packagingindustry

- Financial framework for preparation of financial statements: Vietnamese AccountingStandards.

- The company follows Vietnamese Labor Code and other related regulations

- Financial statements in Vietnamese are statutory, English version is translated fromVietnamese version

- Fiscal year: January 1# to December 31th

- Currency: Financial statements are measured in Vietnam dong (VND) Thisaccounting currency is due to main currency used in purchases of materials, labor,production and other costs

Understanding and assessment of payroll expense-related internal control

Internal control is procedures designed and implemented by clients so as to minimizerisks to business, ensure continuing effective and efficient operation and ensurecompliance to laws and regulations as well As external auditors, we normally payattention to internal control aspects that influence the quality of financial statementinformation The extent of reliance of internal control depends on nature of each auditengagement and auditor’s expectation of this system and understanding of the entity.The more reliable internal control, the less test of detail will be conducted This is alsohelpful to manage the workload, design of procedures, needed time and necessarypersonnel.

actions are a decisive factor for effectiveness Additionally, roles of code of conduct, human resource policies and organizationstructure are highly valued to create a healthy and transparent working environment Control environment has a pervasive influence

to the overall internal control system

Control environment - Understanding

1 Performed each of the following procedures to obtain an understanding of the control environment relevant to the preparation of the financial statements:

» Inquired of management and other appropriate individuals within the entity, including those within the internal audit function if one exists

Name and date of inquiry:

PwC has inquired Mr Luan - CA and Ms Van - HR officer on 23 June 2022

» Obtained additional evidence through use of techniques in addition to inquiry (i.e., corroborated inquiries through observation or inspection of documents)

¢ Considered any information gathered during the acceptance & continuance process and other engagements performed for the entity (if applicable)

Based on the procedures performed obtained an understanding of the controls, processes and structures that address each of the following:

« How management's oversight responsibilities are carried out, such as the entity’s culture and management’s commitment to integrity and ethical values

Control environment - Evaluation

2 Concluded whether management, with the oversight of those charged with governance (where applicable), has created and maintained a culture of honesty and

ethical behavior:

Noissues identified, or

I~ Issues identified

+

3 Based on the understanding obtained and procedures performed over the entity's control environment:

f Nocontrol deficiencies identified, or

I~ Control deficiencies identified - CD/W(s) created in provided links

4 Concluded whether the control environment elements collectively provide an appropriate foundation for the other components of internal control considering the

nature and complexity of the entity:

f Control environment provides appropriate foundation, or

[ Control environment does not provide an appropriate foundation

5 Based on procedures performed and evidence obtained to understand and evaluate control environment, identified and assessed risks of material misstatement and

documented each of the following in "Scoping and Inherent Risk Assessment" view in Aura:

+ Identified financial statement or assertion level risks of material misstatement

* Assessment of inherent risk, including, for assertion level risks, assessing the level of susceptibility to misstatement from inherent risk factors

¥ Confirmed that the risk assessment procedures performed were designed and performed in a manner that was not biased towards obtaining audit evidence that

may be corroborative or towards excluding audit evidence that may be contradictory, and that corroborative and contradictory evidence obtained was considered when identifying and assessing risks of material misstatement.

Figure 4: Control environment

process involves following elements:

Identify relevant business risks => Estimate the significance of the risks => Assess the likelihood of occurrence => Decide uponactions to address them

If, during the audit, auditors recognize a risk not identified by the entity, they can evaluate the effectiveness of the risk assessment

process.

The entity's risk assessment process - Understanding

1 Inquired of management and obtained additional evidence beyond inquiry (i.e., corroborated inquiries through observation or inspection of documents) to obtain an

understanding of the entity's risk assessment process relevant to the preparation of the financial statements, by understanding the entity's process for each of the

following:

Name and date of inquiry:

PwC has inquired Mr Luan - CA and Ms Van - HR officer on 23 June 2022

+ Identifying business risks relevant to financial reporting objectives

Checked those that apply:

I¥ Management establishes strategic and operational objectives which are appropriate to the size and complexity of the entity

Checked those that apply:

Il” Inspected strategic plan and budget, as applicable, and noted it is appropriate to the size and complexity of the entity

Other

The entity's risk assessment process - Evaluation

2 Determined whether management failed to identify risks of material misstatements identified by us.

j¥ Management identified all risks of material misstatement identified by us, or

I~” Management failed to identify one or more risks of material misstatement identified by us

+

3 Based on the understanding obtained and procedures performed over the entity's risk assessment process:

No control deficiencies identified, or

f Control deficiencies identified - CD/W(s) created in provided links

+

4 Concluded whether the entity’s risk assessment process is appropriate to the entity's circumstances considering the nature and complexity of the entity.

¥ The entity’s risk assessment process is considered appropriate, or

[FT The entity’s risk assessment process is not considered appropriate

+

5 Based on procedures performed and evidence obtained to understand and evaluate the entity's risk assessment process, identified and assessed risks of material

misstatement and documented each of the following in "Scoping and Inherent Risk Assessment" view in Aura:

* Identified financial statement or assertion level risks of material misstatement + Assessment of inherent risk, including, for assertion level risks, assessing the level of susceptibility to misstatement from inherent risk factors

l¥ Confirmed that the risk assessment procedures performed were designed and performed in a manner that was not biased towards obtaining audit evidence that

may be corroborative or towards excluding audit evidence that may be contradictory, and that corroborative and contradictory evidence obtained was considered when identifying and assessing risks of material misstatement.

Figure 5: Risk assessment

to ISA 315, there are 5 types of control activities, namely authorization and approval, reconciliation, verification, physical and logical control, and segregation of duties.

- Information and communication: includes financial reporting system (initiate, record, process and report entity transactions) and

to maintain accountability for the related assets, liabilities and equity.

The information system and communication - Evaluator

5 Based on the understanding obtained and procedures performed over information system and communication including understanding of the IT environment documented

in EGA "Understand and assess complexity of the entity's IT environment” :

i¥ No control deficiencies identified, or

Control deficiencies identified - CD/W(s) created in provided links

6 Concluded whether the entity's information system and communication including the IT environment documented in EGA "Understand and assess complexity of the

entity's IT environment" appropriately support the preparation of the entity's financial statements in accordance with the applicable financial reporting framework.

¥ The entity's information system and communication is considered appropriate, or [ The entity’s information system and communication is not considered appropriate

7 Based on procedures performed and evidence obtained to understand and evaluate the information system and communication including the IT environment documented

in EGA "Understand and assess complexity of the entity's IT environment”, identified and assessed risks of material misstatement and documented each of the following in

"Scoping and Inherent Risk Assessment” view in Aura:

* Identified financial statement or assertion level risks of material misstatement + Assessment of inherent risk, including, for assertion level risks, assessing the level of susceptibility to misstatement from inherent risk factors

* Confirmed that the risk assessment procedures performed were designed and performed in a manner that was not biased towards obtaining audit evidence that may be

corroborative or towards excluding audit evidence that may be contradictory, and that corroborative and contradictory evidence obtained was considered when

identifying and assessing risks of material misstatement.

Figure 6: Information system and communication

- Monitoring: is mainly undertaken by internal audit function; therefore, discussion with internal auditors is important for externalauditors to be aware of system weakness Monitoring of control ensures that the system is still operating effectively, towards its objectives and corrections are taken timely.

The entity's process to monitor the system of internal control - Evaluatior

3 Based on the understanding obtained and procedures performed over the entity's process to monitor the system of internal control:

No control deficiencies identified, or

~ Control deficiencies identified - CD/W(s) created in provided links +

4 Concluded whether the entity's process for monitoring the system of internal control is appropriate to the entity’s circumstances considering the nature and complexity

of the entity.

The entity’s process for monitoring the system of internal control is considered appropriate, or [~ The entity's process for monitoring the system of internal control is not considered appropriate +

5 Based on procedures performed and evidence obtained to understand and evaluate the entity's process to monitor the system of internal controls, identified and

assessed risks of material misstatement and documented each of the following in "Scoping and Inherent Risk Assessment" view in Aura:

* Identified financial statement or assertion level risks of material misstatement

* Assessment of inherent risk, including, for assertion level risks, assessing the level of susceptibility to misstatement from inherent risk factors

f* Confirmed that the risk assessment procedures performed were designed and performed in a manner that was not biased towards obtaining audit evidence that

may be corroborative or towards excluding audit evidence that may be contradictory, and that corroborative and contradictory evidence obtained was considered when identifying and assessing risks of material misstatement.

Figure 7: Monitoring internal control system

Since the main focus of most financial statement users are related-profit items, andaccording to global PwC policy, overall materiality (OM) is based on business results,for example, total revenue, profit before interest and tax (PBIT) and net profit.According to professional judgement, is a benchmark to establish OM in this

- Tolerable misstatement (or called De Minimis Level/SUM in PwC) is a thresholdwhich any misstatement is lower than can be passed.

Benchmark Rule of Overall Materiality Performance De Minimis Level

Aura platform is a global standardized system of PwC, auditors utilize Aura as a tool

to follow up the work, document working papers, manage audit procedures and store data and information, This supports auditor to give out audit opinions on a basis ofrecorded evidence Each EGA in Aura represents an audit activity to gain evidenceand contains separate working papers

The audit procedures were performed as below:

2.3.2.3.1 Lead schedule

Lead schedule/ lead sheet aggregates data of payroll expense accounted for this year and previous year, thereby showing variance and percent variance between two periods This year data is obtained from trial balance (TB) reconciled with general ledger (GL)accounts With the overall view of fluctuations, auditors can visualize following areas that need to get deeper research To be moredetailed, there are two expense items related to employee costs, namely selling expense and G&A expense (in case of manufacturingcompany, a large part of salaries contributes to inventory amount) Additionally, there are audit approaches, assertions achieved andlinks to other EGA references

LEAD SCHEDULE

DOCUMENTATION OF ACCOUNTS

Current Period 1/1/2022 Adj.Current Period Column Comparative 1/1/2021

-#SuN nề unt 31/12/2022 aa 1/1/2022- 31/12/2022 31/12/2021 sor @ we Baus

GL, TB, PL Cal PwC Cal Cal

a b c=atb e f=d-e g=f/e

Salary expenses - Payroll sheet

641 = Selling staff cost (6411) 97.489.045.879 - 97.489.045.879 92.786.865.412 4.702.180.467 5%

642 G&A staff costs (6421) 12.043.021.422 - 12.043.021.422 12.182.754.529 (139.733.107) -1%

Total payroll expenses 109.532.067.301, : 109.532.067.301 104.969.619.941 4.562.447.360

‘We obtained the GL of account Payable to employee, reconciled with TB, FS without exception noted.

_ LEAD SCHEDULE

BS, TB, GL Audited

334 Payable to employees 12.965.503.567 - 12.965.503.567 20.973.311.333 (8007.807.766) -38%,

Total 12.9 503.567 12.965.503.567 20.973.311.333 -8.007.807.766

(Gimme Thị: ñucruarion mainly come the from the balance of salary fund in 2021

Figure 9b: Leed schedule/ Leed sheet

Overall comment:

Compared to 2021, the payroll expense in 2022 witnessed a slight decrease of 1% inG&A staff cost, and selling staff costs witnessed a slight increase of 5% ABC is acompany with a long history of operation and pursued a strategy of stable operationand growth, specifically maintaining low staff turnover rate Overall, the salary

expense in 2022 is in line with the figure in 2021

In the year, there were 8 new employees and 8 resigned employees, which means thenumber of staff at 31.12.2022 stays the same as at 31.12.2021 (270 employees) TheG&A payroll expense was in an opposite trend as it decreased by over 139 mil VND.The main reason came from the decrease of unemployment insurance expenses

- Reasonableness test for SIHIUI

- Reasonableness test for severance allowance

- Reconcile with other sections

Total headcount of ABC Company at 30/6/2022 is 274 employees located in fourplaces, namely head office (HO), Dong Nai, Tay Ninh and Bac Ninh There are twomain divisions, administrative office and production department

The working time for admin dept is from 8am to 5pm Monday to Friday Inproduction dept, there are 2 shifts, one is from 7am to 7pm and the other is from 7pm

to 7am next day

Basic salary is stated on labor contract (VND).

In standard working condition, employees have 12 annual leave days On the otherhand, persons who work in hazardous conditions enjoy 14 leave days per year

Recruitment

Personnel requests are raised by each production department and processed by headoffice Third party services such as Vietnamworks, jobstreet.com are used asrecruiting channels

First HR department will scan through CV received and arrange a phone interviewand do knowledge test before a final interview Then the chosen candidates will sign aprobation agreement for 2 months When the probation period ends, the new joinerwill be assessed by department head Finally, the official labor contract will be signedbetween employee and general director (GD) The labor contract will be prepared by

HR department and reviewed and signed by GD

Time recording

The standard working day per month is 22 days Every staff will record a timesheetmanually daily Then, these timesheet paper will be summarized and reconciled byHead of Dept before being sent to HR Department

Calculation

Salary calculation is conducted by each production branch’s accountants and approved

by HO Then payroll sheet of each branch will be transferred to GD for approval.

HO will book basic salaries expense from salary | Dr 641

fund which is based on decision of quarterly Cr 334

financial plan for each branch ‘

Then, this expense will be allocated and charged | Dr 334 Dr 3368

each month in branches Cr 1368 Cr 338*

The expense for SIHIUI and TU will be charged | Dr 64* Dr 64*

by each branch and HO Cr 338 Cr 338

The expense of OT, night shift and other | Dr 64* Dr 64*

allowance are also charged separately by each

branch and HO Cr 334 Cr 334

The SIHIUI paid on behalf of employees by | Dr 334* Dr 334*

company and other deductions will be deducted to Cr 338 Cr 338

employees payable before payment.

Dr 334 Dr 334

Cr 112 Cr 112

Conclusion: No exception noted

Account code lrị Description

Selling staff costs

-Basic salaries

OT and allowances

74.520.675.520 74.520.675.520 72.162.198.910 2.358.476.610 3% Check posting Salary and KPI bonus

4.252.785.292 4.252.785.292 4.062.968.119 189.817.173 5% Check posting OT and other allowances of employees

1.044.269.388 1.044.269.388 1.015.350.892 28.918.496 3% Reasonableness Trade union fees

6.421.665,984 6.421.665.984 6.253.059.322 168.606.662 3% Reasonableness Social insurance fees

1.113.584.686 1.113.584.686 1.075.846.497 37.738.189 4% Reasonableness Health insurance fees

94.916.814 94.916.814 271.002.199 (176.085.385) 65% Reasonableness Unemployment insurance fees 9.503.605.922 9.503.605.922 7.107.245.191 3.396.360.731 349 Check posting Safe operation bonus 1 537,542,273 537.542.273 839.194.282 (301.652.009) 36% imm pass Others B)

97,489.045.879 97.489.045.879 92.786.865.412 4.702.180.467 5%

Basic salaries 7.607.823.915 7.607.823.915 9.240.004.123 (632.180.208) Check posting Salary and KPI bonus "1

OT and allowances 253.736.823 253.736.823 140.634.526 113.102.297 80% Check posting OT and other allowances of employees

Meal allowance 1.303.400.000 1.303.400.000 975.175.000 328.225.000 34% imm.pass Meai allowance for adminstrative dept

ˆ ˆ - « 0% Reasonableness Trade union fees 2.298.106.250 2.298.106.250 2.287.453.500 10.652.750 0% Reasonableness Social insurance fees

400.788.000 400,788,000 399.874.500 913.500 0% Reasonableness Health insurance fees

37.266.460 37.266.460 111.973.880 (74.707.420) 67% Reasonableness Unemployment insurance fees 141.899.974 141.899.974 - 141.899.974 0% Check posting Safe operation bonus

: : 27.639.000 (27.639.000) -100% imm.pass Others

12.043.021.422 12.043.021.422 12.182.754.529 (180.200.161) “1%

Figure 10: BreakdownFor Selling staff costs:

[1] Due to positive recovery after Covid 19, salary fund increased compared to 2021 After being extrapolated, salary fund was assumed to increase by 5%.

[2] The safe operation bonus increased considerably by 34% because the company wanted to increase safety system

[3] The other payroll expense increased by 36% compared to 2021 The reason came from annual leave travelling expense and clothing expense.

For G&A staff costs:

The nature is straightforward and the movement from 2021 to 2022 is immaterial (far below SUM) We suggest passing

Conclusion: No exception noted

2.3.2.3.4 Check posting

The audit team performed targeted testing for check posting This is based on the threshold set up at 5% of total population

Auditors will compare the figures from payroll sheet with GL amount on a monthly basis for 5 items, total income, SI by employer,

HI by employer, UI by employer and union fee SI, HI and UI by employee and PIT are deducted from total income, so it is not needed here.