INTRODUCTION
Regarding the rationale of the thesis
As Vietnam's economy rapidly develops, competition among businesses intensifies, particularly with the advent of foreign enterprises following recent trade agreements To thrive in this challenging landscape, domestic companies must enhance their brand and reputation through transparent financial practices The audit industry plays a crucial role in this process by improving management efficiency and ensuring honesty in financial reporting, thereby fostering a healthier business environment Financial statements provide vital insights into a company's financial health, with salary information significantly impacting these reports Consequently, auditors prioritize salary-related data during financial statement audits to ensure accuracy and reliability.
Salaries constitute a significant portion of total business expenses, and inaccuracies in salary costs can severely impact product pricing and the integrity of financial statements This, in turn, influences economic decision-making for users of these financial reports Through my internship at Deloitte Vietnam, I recognized the critical importance of salary audits, prompting me to focus on the topic: "Salary Audit Process in Financial Statements Audit at Deloitte Vietnam."
Objectives of the thesis
Objectives of the thesis include:
• Find out about salary audit process in XYZ company conducted by Deloitte Vietnam audit company
• Recommend solutions to improve the salary audit process in Deloitte Vietnam audit company
Study Question
• How salary audit is conducted by Deloitte Vietnam audit company?
• What are the solutions to improve current audit process in Deloitte Vietnam audit company?
Subjects and scope of study
The subjects and scope of study includes these:
• The subject of study is studying the salary audit process in audit the financial statements conducted by Deloitte Vietnam audit company
• The study was carried out according to the salary cycle audit process and account citation during the audit of the XYZ company's financial statements performed by Deloitte Vietnam
In this article, we present an audit of performance data for company XYZ for the financial year ending December 31, 2020 Please note that the figures and examples used are purely illustrative and based on hypothetical data to maintain client confidentiality.
• Total time for studying this case is 2 months in 2021
Research methodology
In this thesis, I employed the interview method during my tenure at the company to gain a realistic understanding of the research topic Focusing on Deloitte Vietnam's salary audit process, I will detail the practical application of this process, supported by data that illustrates each specific method and procedure Through this research and analysis, I aim to contribute to the enhancement of the salary audit process.
To enhance auditing skills, it is essential to study audit records and learn from the experiences and methodologies of senior auditors This involves collecting audit evidence, utilizing effective audit methods, and preparing presentations on working papers Additionally, gathering data from research subjects, observing the implementation process, and conducting interviews with company employees are crucial for a comprehensive understanding of the collected data.
THEORETICAL BASIS OF SALARY AUDIT
Overall about salary
2.1.1 Features of salary in audit
Salary refers to the monetary compensation that employers are obligated to pay employees based on contractual agreements and legal standards, in exchange for their labor This compensation encompasses the base salary associated with the employee's job title, along with any additional allowances and supplements.
Salaries represent the monetary value of labor power, linking them to economic categories such as labor, money, and commodity production They are essential elements of production and business costs, directly influencing the pricing of products and services Furthermore, salaries serve as a crucial economic lever that enhances production efficiency and boosts labor productivity, fostering employee motivation and engagement in their work In essence, salaries play a vital role in promoting overall labor productivity.
It is the payment of salary according to the working time of employees Time can be in hours, days, weeks, months
In fact, businesses have two most basic salary calculation methods:
Monthly salary = Salary + allowances (if any)/standard working day X Number of actual working days
Or: Monthly salary - salary/standard day salary of the month X number of days of unpaid leave
Note: Standard working day is the number of working days in a month For example, a company has a policy that works from Monday to Friday, Saturday and Sunday off
We consider April has 8 days off, so there are 22 official working days So the number of working days in a month is 22 days
Employees can easily understand their salary calculations, as the deduction for unpaid work is a fixed amount per day For each day off, the corresponding salary is deducted Conversely, if there are no salary changes, employees who work the full prescribed days each month will receive their full salary.
The monthly salary is calculated using the formula: (salary + allowances) / 26 x actual working days, making it variable due to differing standard working days each month With months having 24, 26, or 27 working days depending on the total number of days, employees should strategically consider taking unpaid leave during months with fewer working days to better manage their salary and living expenses This approach not only impacts individual finances but also affects the productivity and business operations of enterprises, as employees may choose to take leave during months with more working days.
Performance-based pay is a compensation structure where employee salaries and bonuses are directly linked to sales achievements relative to set targets and the company's compensation policy This approach is commonly utilized for sales personnel and related roles.
Some ways to pay are as follows:
• Salary/bonus based on individual sales
• Salary/bonus based on group sales
• Other forms of business bonuses: debt, market development, etc
This is a way to pay employees after completing a right amount of work with the quality assigned and on time
Salary = Fixed salary X percentage of job completion
In this case Enterprises will use allotment contracts to work and offer appropriate remuneration
Upon completion of the work, the results must be submitted to the principal, who will then receive these outcomes The contracted party is accountable for delivering the work results and is also responsible for paying the agreed-upon remuneration to the contracted party.
Payment is based on the quantity and quality of products produced, linking labor productivity directly to employee compensation This payment structure incentivizes workers to enhance their productivity, ultimately leading to increased output.
Salary = Quantity of products * Unit price of a product
Most businesses now use this method of payment to properly meet the capacity of employees
2.1.3.2 How to calculate salary for leave and holidays
In situations where an employee's absence is due to their own fault, the company will withhold any remaining salary Conversely, if the absence is caused by the employer, compensation will be provided in accordance with the contract terms Additionally, if disruptions arise from factors such as utility outages, supply shortages, natural disasters, or mandated relocations by the government, both parties will agree on the terms of compensation Specifically, if an employee is absent for less than 14 days, their salary during this period must not fall below the minimum wage outlined in their labor contract.
According to Article 113 of the Labor Code, an employee who has worked for full
12 months is entitled to annual leave and is entitled to full salary from 6-12 days (depending on the enterprise and the nature of the job)
According to Article 112 of the Labor Code, employees are entitled to holidays and
New Year holidays but still receive full salary Some holidays include:
• Article 116 stipulates that there are days off with personal work but still receiving full salary
• Natural and adopted children get married: 1 day
• Birth parents, adoptive parents, biological children, adopted children, biological parents, adoptive parents of spouses: 3 days
Employees who work overtime are entitled to compensation based on their salary unit price, with specific rates for public holidays and paid days off, which must be at least 300% of their regular pay, excluding holiday pay for daily wage earners Employers are obligated to pay this rate and account for the employee's annual leave If an employer fails to pay the required salary, employees have the right to sue, and the employer will still be liable for payment However, if both parties agree to treat the working day as a regular day while ensuring the employee's annual leave is preserved, the employer is not required to pay overtime.
Employees receive their salaries based on various payment structures, including hourly, daily, weekly, and monthly payments Hourly, daily, and weekly employees must be compensated after their respective working periods, with lump sum payments requiring at least 15 days' notice Monthly salaried employees receive payment either once a month or semi-monthly, while those paid per product follow the terms outlined in their contracts For extended projects, monthly salaries may be advanced based on the work completed Timely and full payment is essential, and if delays occur, payments must be made at least one month in advance, along with interest equivalent to the state bank's deposit rate Different businesses adopt various salary payment methods tailored to their operational needs, and many are now implementing the 3P salary calculation method, which is gaining popularity in the Vietnamese market for its effectiveness and fairness.
Overall of salary accounting cycle
Salary accounting involves managing employee compensation through various documentation such as timesheets, overtime slips, and labor contracts The salary accountant is responsible for accurately tracking and reporting labor conditions, calculating salaries, bonuses, and allowances, and ensuring compliance with labor policies and regulations Key duties include monitoring the use of salary and insurance funds, allocating deductions for social security, health insurance, and union contributions, and generating reports related to labor and compensation Additionally, the salary accountant analyzes the utilization of labor and associated funds to optimize financial management within the organization.
2.2.2 Overview of the salary cycle
The human resources department plays a crucial role in recruiting and hiring employees, maintaining essential records such as personal information, job vacancies, and starting salaries in both HR and accounting departments This separation of duties enhances internal control by preventing payroll fraud, as it mitigates the risk of overreporting employee numbers and unauthorized salary payments The salary and employee cycle, which starts with hiring and concludes with salary payments and government obligations like taxes and insurance, is vital for auditors to understand Familiarity with this cycle allows auditors to identify key documents and potential errors, ensuring effective oversight and control throughout the process.
Timesheets are essential for tracking employees' actual working hours, leave, and absences, facilitating accurate monthly salary payments Displayed in a visible location, these timesheets promote transparency and objectivity, reducing potential conflicts between workers and businesses Employees can use this information to verify their working days and hours, enabling them to calculate their expected salary and compare it with what they receive Additionally, the completed service product certification sheet details the number of products or services achieved by an employee, requiring signatures from relevant parties, including the employee, supervisor, quality inspector, and approver, ensuring accountability and quality assurance.
+ Contract of assignment: is a signed contract between the contracted person and the assignor on specific jobs, working time, responsibilities and interests of the two parties
Time card systems, fingerprint ID, and face ID are commonly used in businesses to monitor employee attendance Each employee receives a personal card, and their attendance is tracked by an independent department or automated system, with reports generated weekly To record working hours, companies utilize electronic clock devices where employees either insert their cards upon arrival and departure or use biometric methods like fingerprint or face ID for secure access, though these biometric systems can be costly to implement.
The salary accountant meticulously verifies labor records and salary documents before calculating salaries, bonuses, and allowances Once confirmed, these amounts are compiled into the Salary Payment Table and Bonus Payment Table, adhering to the prescribed accounting templates Additionally, accountants are responsible for declaring deductions related to salaries, which is essential for ensuring compliance with state obligations It is crucial that during the preparation of salary payment tables, accountants categorize salaries based on each employee's department and role, facilitating accurate expense allocation.
Bookkeeping involves creating salary diary entries based on payroll tables, where accountants utilize various accounts such as accounts payable to employees, social insurance, health insurance, personal income, and other payable accounts These entries are essential for maintaining accurate expense accounts Subsequently, the accountant transfers the information from the salary diary to the General Ledger for comprehensive financial tracking.
Risks of recording & reporting on the payroll process:
Surveys on wage cost allocation reveal that incorrect calculations can lead to misjudgments of assets on the balance sheet, distorting values related to work in progress, finished products, inventory, and various expenses Auditors assess consistency in cost accounting across periods for accurate classification of chargeable divisions, such as production and management departments They also verify the salary accounting chart to ensure compliance with regulations and company policies Additionally, auditors examine salary deductions, including social insurance, health insurance, and union funds, using salary audit results to calculate these deductions and comparing them with insurance agency records to confirm proper accounting practices.
In the final assessment of control risk and the design of substantive tests, auditors evaluate the effectiveness of the internal control system after conducting control tests If the system is functioning well, detailed balance surveys may be reduced; otherwise, they may increase Significant changes in control procedures or new accounting methods may prompt auditors to add compliance tests or assess control risks without a full review of the internal control system Basic tests aim to verify the accuracy of payroll accruals and deductions, ensuring timely recording and payment of payroll transactions Key accounts, such as salary, bonuses, and employee payables (Account 334), along with payroll deductions, are regularly audited For Account 334, auditors will review salary and bonus payments, leveraging their understanding of the company's payroll policies to assess consistency across accounting periods before evaluating the reliability of account balances.
Accurate recording of unpaid bonuses at year-end is crucial for enterprises, as errors can significantly impact the balance sheet Auditors assess this by comparing records with management's approved wage decisions Additionally, for other employee payables such as benefits and leave entitlements, auditors ensure consistency in calculation methods across accounting periods They verify the reliability of recorded amounts by recalculating related figures and reviewing supporting documentation.
For account 338 – Other payables, which includes salary deductions and payments such as social insurance, health insurance, and CPC, the auditor will verify the balance on detailed accounts against the deduction spreadsheet and cash payments on payment slips Regarding expenses associated with salary and employee cycles, including CPA (TK622), CPSXC (Ac.627), and Corporate Governance (Ac 642), the auditor typically conducts additional basic tests only when weaknesses in the internal control structure related to accounting and bookkeeping are identified.
2.2.3.1 Documents of Salary accounting include:
A labor contract, also known as a collective labor agreement, is a formal agreement that outlines the rights and obligations of both parties involved, specifically within the context of employment Unlike civil or commercial contracts, a labor contract is distinct and focuses on the relationship between the employee and employer It encompasses essential elements such as employment terms, salary, working hours, and social insurance, ensuring that both parties have a clear understanding of their responsibilities and entitlements within the labor relationship.
- Regulations on salary, bonus and allowance
Salary and bonus payment regulations must be approved by the grassroots trade union executive committee during their formulation, amendment, and implementation oversight These regulations take effect upon recognition by the Hanoi Department of Labor - Invalids and Social Affairs, thereby nullifying any conflicting previous regulations The company adheres to Decree No 122/2015/ND-CP, which establishes the regional minimum salary as the basis for employee salaries For any cases not covered by these regulations, state policies regarding salaries will apply.
- Decision to increase salary (in case of salary increase)
Regulation is a decision confirmation made and approved by an authorized person in the company
According to Article 1 of the Consolidated Document 03/VBHN-BCA, the identity card serves as an official identity document for citizens, certified by a competent police agency, and contains essential information unique to each individual This document is crucial for facilitating citizens' rights and obligations during travel and transactions within Vietnam Additionally, companies are required to maintain a copy of their employees' ID cards as supporting documentation.
A time sheet is essential for tracking employee workdays, including those who have left or taken leave for social insurance within a month It serves as the foundation for accurately calculating employee salaries Each department, team, or group within a company must prepare a monthly time sheet and submit it to the accounting department along with other relevant documents for salary processing Typically, these time sheets are created using Excel on a computer.
- Salary scale built by enterprises themselves
Salary grades represent the structured advancements within an employee's salary range, with each level assigned a specific salary coefficient To ensure fairness and competitiveness, each salary grade must contain a sufficient number of levels that create a meaningful variation between the minimum and maximum salaries in that tier This structured approach not only promotes equity but also motivates employees to enhance their performance and productivity As employees progress through the ascending salary levels, they aspire to achieve higher grades, which correspond to increased salary coefficients and, ultimately, higher earnings.
- Payment slip for salary payment, or bank voucher if paying via bank
Regarding Control objectives
The primary goal of an audit is to ensure that financial statements are prepared in accordance with accepted accounting standards and legal requirements, providing a true and fair view of the organization's financial position Each audit cycle focuses on specific objectives that contribute to the overall aim of the audit, ensuring comprehensive compliance and accuracy.
The salary and employee cycle encompasses general goals and objectives aligned with management's commitment to effectiveness, integrity, and adherence to rights and obligations, ensuring proper classification, presentation, and accuracy throughout the process.
The primary goal of the audit is to thoroughly assess the salary and employee cycle, gathering evidence to validate the accuracy and fairness of salary and employee transactions It is essential that all significant financial information related to this cycle is presented in compliance with relevant accounting principles and regulations.
Ensure that your accounting policies are consistent with the previous year and align with the relevant financial reporting framework Create a summary table comparing current balances to those from the end of the previous year Cross-check the balances on the general data sheet with the PSS's Balance Sheet, general ledger, and any detailed working papers from the prior audit Additionally, review your payroll records to confirm that the employee list matches your employment records, removing any individuals who are no longer employed Given that turnover can occur at any time, it's crucial to verify that all employees who received paychecks actually worked during the corresponding pay periods.
To ensure compliance and accuracy in payroll management, organizations utilizing independent contractors or external vendors must verify the contract duration and confirm that the pay rates in the payroll system are correct for each employee This includes checking individual base salaries, overtime rates, tax deductions, and withholdings to ensure they are current and aligned with employee records Additionally, if any employees received raises or promotions during the audit period, it is essential to confirm that their pay rates were updated accordingly on the effective date.
Accurate tracking of promotions, bonuses, and salary increases throughout the year is essential for maintaining correct payroll figures for each employee during specific pay periods Businesses typically offer paid leave, sick time, and other payroll categories, which must be properly categorized as vacation, sick leave, or bereavement leave It is crucial to verify pay rates against employee attendance records, and during audits, it is necessary to check overtime hours, sick leave, and vacation days to ensure that employees receive appropriate compensation without discrepancies in their paychecks.
To ensure accurate payroll audits, begin by aligning your payroll records with the company's general ledger, confirming that payroll expenses match audit findings Additionally, reconcile payroll records with bank statements, which can be simplified by maintaining a separate payroll bank account It is essential to verify that your company's bank account totals correspond with internal ledgers, ensuring that any discrepancies are updated in both internal records and bank documentation.
This year, a comparison of the balance of salaries payable and deductions reveals significant changes when contrasted with the previous year Notably, the total liabilities associated with these payables have also fluctuated, indicating a shift in financial obligations Investigating the causes of these unusual fluctuations is essential to understand the underlying factors contributing to the discrepancies in salary payables and overall liabilities.
This year's salary expense analysis should be compared to the previous year on a month-to-month basis and by department, including roles such as office manager, workshop manager, and sales Additionally, it is essential to consider fluctuations in personnel and salary change policies, alongside revenue, profit, and finished products, to evaluate the reasonableness of expenses and identify any unusual issues Furthermore, estimating social insurance, health insurance, and unemployment insurance in accordance with regulations and comparing these figures with unit data will help uncover and explain any discrepancies.
The objective of existence or occurrence in salary transactions ensures that all recorded salaries have genuinely taken place and are supported by appropriate documentation This includes the accurate recording of cash expenses related to salaries, as well as any unpaid salaries that legitimately exist The primary aim is to prevent fraudulent activities that could lead to an overstatement of salary figures, thereby ensuring the integrity of financial reporting.
Completeness objectives focus on ensuring that all salary transactions are accurately recorded in financial statements, countering potential fraud and salary understatement If an enterprise fails to fully document salary payments, it risks misrepresenting costs, payables, and related assets like cash and bank deposits This underreporting of salaries not only distorts the true financial position of the company but also artificially lowers costs, leading to inflated recorded profits compared to the actual financial situation.
Businesses have a legal obligation to ensure timely salary payments to employees and government agencies, adhering to established regulations Compliance with salary payment and deduction protocols is crucial; failure to do so can lead to employee dissatisfaction and potential intervention from state agencies or trade unions Thus, maintaining proper salary operations is essential for organizational stability and workforce retention.
Ensuring accuracy in salary transactions is crucial, as it guarantees that the recorded values for eligible salary operations are correct Errors can arise from various sources, including miscalculations, bookkeeping mistakes, or fraudulent activities, which can lead to incorrect salary payments and affect related assets Accurate pricing and measurement are essential for preparing tax reports and managing other salary-related obligations To mitigate the risk of errors in tax calculations and salary payments, organizations often designate an independent staff member to conduct a thorough review of these calculations.
To ensure accurate financial reporting, it is essential to classify and present salary expenses and payables in accordance with the current accounting standards By categorizing salaries based on criteria such as department and employee role, organizations can prevent misstatements in cost accounts and inventory valuations.
Salary audit process
2.4.1 The role and objectives of the salary audit
Salary and employee cycle audits are crucial for balancing the interests of both employers and employees, as they often have conflicting objectives—employees seek higher salaries and rapid growth, while employers aim to minimize costs Auditors typically focus on the economic aspects of these audits, emphasizing cost efficiency for businesses, but they also consider the societal implications, ensuring that employee interests are protected The outcomes of these audits not only enhance financial transparency for companies but also provide significant benefits to employees, highlighting the importance of the salary and employee cycle in fostering a fair workplace.
First, salary and salary deductions are a huge expense in businesses, whether commercial, service, or manufacturing Even if automation develops, workers are still indispensable
When assessing inventory value in manufacturing and construction firms, accurately calculating, classifying, and allocating salary costs is crucial Mismanagement in these areas can result in incorrect work-in-process and inventory valuations, leading to errors in the cost of goods sold and ultimately impacting profitability.
Third, salary is an area where the company's resources are easily wasted due to inefficient use or loss due to fraud
2.4.2.1 Summary of audit procedures for the salary process
The audit process involves a systematic sequence and procedures for carrying out internal audit work, tailored to align with the evolving needs and objectives of internal audit activities.
The audit process includes the following four main steps:
• Step 1: Make an audit plan (Annual audit and each audit)
2.4.2.1.1 Step 1: Make an audit plan
The audit plan is prepared with the following tasks:
Carry out the necessary work to prepare for the audit planning work:
Review the current internal control system
Integrity of the Board of Directors
Find out more about the field of employee salary
About the organization of payroll accounting work at the enterprise
About the salary calculation method applied
About salary accounting at the enterprise
About recruiting and managing employees
Learn and evaluate the control system
Understanding and evaluating the control system in the enterprise is a very important part that the auditor needs to perform in a control audit
– Identify types of potentially serious misinformation
– Consider factors that affect the likelihood of serious errors occurring
Initial assessment of control risk
Enterprise risk assessment: to determine appropriate control mechanisms and procedures This is an emotional issue, based a lot on the experience of the auditors The assessment should be regularly reviewed
The assessment should be based on two factors:
- Probability of the risk occurring
- Level of impact when the risk occurs
Auditors face inherent challenges due to limited sample sizes and the complexity of identifying misstatements and concealed fraud, making it impossible to detect all material errors Consequently, audit risk persists even when auditors adhere to generally accepted auditing standards Establishing an acceptable level of audit risk is crucial, especially during the audit planning phase and for the overall effectiveness of the audit organization.
More specifically in the payroll process, there are four groups of control risks: – Risk of salary determination
– Risks of recording & reporting on the payroll process
In which, the risk of salary determination is the risk with the highest probability and if this risk occurs, the consequences of this risk will also be the largest
Procedures for controlling wages and deductions by salary:
Controlled test for wages and performed according to functions of the cycle
The functions related to salary encompass recruiting and hiring employees, approving salary levels and grades, tracking dynamic work hours, and managing payroll calculations and payments Internal audits assess the adherence to labor admission procedures, hiring contracts, and salary approvals while ensuring independence between HR management and employees The department monitors working hours and processes wage payments, utilizing recruitment documents and salary approval decisions for accuracy To maintain clear separation of responsibilities between labor management and timekeeping, audits conduct observations to verify these distinctions Additionally, tracking labor hours and payroll deductions is crucial as it impacts salary expense accounting Audits evaluate existing control processes to prevent and detect errors in timekeeping, work completion confirmation, and salary payment accounting, including health and social insurance contributions.
To accomplish the above objectives, the audit should:
Procedure for analyzing salary and deductions according to salary
To effectively analyze payroll expense accounts, auditors should compare them across different periods to identify unusual fluctuations and gather evidence for detailed examinations Factors such as changes in employee numbers, production levels, and salary norms must be considered during this comparison Additionally, assessing the ratio of salary expenses to production costs and mid-term revenue against previous periods can help confirm the reasonableness of the cost structure, while also accounting for actual business conditions, such as sales difficulties that may lead to decreased revenue despite stable wage costs Furthermore, comparing balances of social insurance and health insurance accounts across periods is crucial for detecting errors in salary deductions, which typically fluctuate minimally based on employee count and regulatory changes A thorough review of salary and deductions is necessary to prevent inaccuracies that could misrepresent asset values on the balance sheet and distort business results, ultimately impacting various financial indicators.
Check balances of accounts in the cycle
Account 334: checked through the balance of wages, bonuses and other payables for employees
It is essential to verify the time limits for calculating salary-based payments, as well as the deadlines for the payment and settlement of related amounts This includes monitoring salary-related expense accounts such as 622 for Direct Labor Costs, 627 for Production Costs, 641 for Selling Expenses, and 642 for General and Administrative Expenses.
There are two primary audit methods: basic audit and compliance audit The payroll process audit is categorized as a data audit, which necessitates the use of the basic audit method This method encompasses various approaches to ensure thorough examination and evaluation.
- General analysis and evaluation method
- Method of checking details of transactions and account balances
Step by step was performed listed below:
Learn and evaluate the internal control system
In a salary audit, the auditor assesses the unit's salary policy, including approval processes for salary changes, bonuses, benefits, and recruitment policies, as well as termination regulations It is crucial to establish clear separation of responsibilities between departments, particularly the labor organization and accounting departments Effective internal controls within the payroll and employee cycle are essential for proper function Recruitment must adhere to well-defined criteria approved by management to prevent hiring incompetent or unethical employees Additionally, accurate payroll accounting is vital, as salaries, bonuses, deductions, taxes, and benefits must be precisely recorded to avoid misrepresentation of costs, expenses, and labor cost allocations.
To effectively manage payroll expenses, it is essential for businesses to establish clear payroll procedures that require management approval for all payments based on recorded liabilities Access to the bookkeeping system should be restricted to prevent unauthorized expenses and unapproved labor costs, necessitating a policy that limits access to accounting reports This includes creating barriers to protect HR and payroll documents and ensuring a clear division of responsibilities among employees to mitigate the risk of fraud Specifically, the human resources department must be distinct from payroll functions, separating duties related to salary calculations, wage payments, and labor monitoring This separation is crucial to prevent conflicts of interest that could lead to inflated salaries or the creation of fictitious employees Additionally, businesses should assess control risks and design appropriate tests to ensure compliance and integrity in payroll processes.
After understanding the payroll cycle and the internal control system, the auditor assesses potential risks associated with the company's payroll process The primary risks identified within the salary cycle include inaccuracies in payroll calculations, unauthorized access to payroll data, and compliance issues with labor regulations.
Risks of recognition & reporting of the payroll process
The payroll unit serves as the foundation for wage payments, accounting records, and payroll cost allocation, making it a crucial starting point in salary and employee surveys.
The auditor begins by selecting a specific payroll period to verify the arithmetic accuracy of calculations and ensure proper allocation to appropriate accounts They then randomly choose several employees to assess the completeness of records and review HR activity reports for necessary approvals, including employment contracts and related documents Additionally, the auditor compares salaries, pay grades, and deductions recorded in personnel files with the payroll information to confirm consistency.
For businesses with stable salaries and employee counts, auditors typically select one month's salary and multiply it by 12 to estimate the annual payroll They then compare this figure to the payroll department's records; if the discrepancy is minimal, it is disregarded, but if it is significant, the payroll department is asked to provide clarification.
For businesses with fluctuating salaries and employee counts, auditors determine the average monthly salary of an employee over the past year by analyzing the audit files from the previous period, using a specific formula for calculation.
Average salary of 1 employee = Total salary/ (12 x Average number of employees)
In which: Total salary and Average number of employees taken from the previous year's audit data
SALARY AUDIT PROCESS IN FINANCIAL STATEMENT
Overall about Deloitte Audit Company
Deloitte Vietnam Audit Company was transformed from Vietnam Auditi Limited Company according to the Business Registration Certificate No
0102030181 issued by the Planning and Investment Department of Hanoi on October
Name of company : DELOITTE VIETNAM COMPANY LIMITED
Main address : 15 th Floor, 34 Lang Ha, Dong Da District, Ha Nọi
Branch address : 57-69F Dong Khoi, Ben Nghe, District 1, Ho Chi Minh Phone number : (84-4) 8.524.123
Website: www.deloitte.com/vn
Deloitte Vietnam Audit Company, originally established as Vietnam Audit Limited Company (VACO) in 1991, was created under Decision No 165 TC/QD/TCCB by the Minister of Finance on May 13, 1991 This establishment aimed to support the needs of a socialist-oriented market economy during the initial stages of Vietnam's economic transformation.
On June 30, 2003, the Minister of Finance issued Decision No 1927/QD-BTC, transforming Vietnam Audit Limited Company (VACO) into a one-member limited liability company The business registration certificate for this entity, numbered 0104000112, was issued by the Hanoi Department of Planning and Investment on January 19, 2004, with a charter capital of VND 9,077,000,000 at the time of establishment.
VACO is Vietnam's premier and largest audit firm, offering specialized services to a diverse range of clients, including joint ventures, wholly foreign-owned enterprises, state-owned enterprises, and international projects Established in partnership with Deloitte Touche Tohmatsu (DTT) in 1992, VACO solidified its collaboration with the official formation of the VACO-DTT joint venture in April 1994 By October 1997, VACO's international service department (ISD) gained recognition as a member of the prestigious Deloitte Touche Tohmatsu network.
DTT, a leading global provider of audit, tax, and financial advisory services, boasts a workforce of over 120,000 professionals and operates in nearly 150 countries It ranks as the second largest firm in the world by revenue, with a dominant presence in the US and rapid growth in Singapore and China.
DTT caters to a diverse clientele, including multinational corporations, large domestic enterprises, donor organizations, state management agencies, and top global financial institutions The firm audits approximately one-third of the world's 1,000 largest companies by revenue and offers a comprehensive range of services DTT's unwavering commitment to delivering the highest quality service is upheld by its professional member firms across the globe.
The collaboration between Vietnam Audit Limited Company and DTT, a prestigious international audit firm with a rich legacy, has resulted in the formation of VACO This partnership leverages a deep understanding of Vietnam's business and legal landscape, positioning VACO as a distinctive force that outshines local audit firms.
On May 7, 2007, the Company transitioned from a single-member limited liability entity under the Ministry of Finance to a multi-member limited liability company, complying with state regulations on independent audits as outlined in Decree 105/2004/ND-CP and Decree 133/2005/ND-CP This transformation mandated that all state-owned audit firms convert their ownership structures to either limited liability companies or partnerships Following this change, the Company officially rebranded from Vietnam Audit Company Limited to Deloitte Vietnam Limited Company, effective November 1, 2007, as per Business Registration Certificate No 0102030181 issued by the Planning and Investment Department of Hanoi on October 18, 2007.
Deloitte Vietnam began its journey with a single office in Hanoi and just 9 employees Over the years, it expanded by opening branches in Hai Phong on May 27, 1996, and Ho Chi Minh City on August 2, 1997 After 17 years of growth and development, Deloitte Vietnam has achieved significant milestones, consistently meeting its business objectives and establishing itself as a leader in the Vietnamese audit industry As a result of its accomplishments, the company has received numerous prestigious awards from the Communist Party and the State.
Deloitte aims to be the benchmark of excellence, striving to be the preferred choice for top clients and talent The firm's enduring values encapsulate the fundamental principles that define its unique culture.
Deloitte prioritizes its reputation, emphasizing that integrity is essential to its success The company is dedicated to sustainable and responsible business practices, ensuring it delivers exceptional value to both markets and clients.
Deloitte plays a vital role in enhancing the effectiveness of capital markets and supporting its member firm clients They view this responsibility as a privilege that demands continuous vigilance and unwavering dedication.
Our company views our culture of borderless collegiality as a key competitive advantage, and we are committed to nurturing and preserving this environment We take exceptional measures to support our employees, ensuring that everyone feels valued and connected within the organization.
Deloitte recognizes that its clients face intricate business challenges that require multidimensional solutions The firm values collaboration among individuals from diverse backgrounds, cultures, and perspectives, believing that this diversity fosters professional growth and enhances leadership skills.
3.1.3 Types of services a Audit Service
Deloitte Vietnam offers top-notch auditing services, including annual financial statement audits, as well as specialized services such as merger and acquisition assessments, quarterly and bimonthly financial statement reviews, and financial statement consolidations for both domestic and international corporations.
Deloitte Vietnam offers advanced auditing tools, resources, and methodologies to its professional staff, ensuring the delivery of top-quality audit services that adhere to stringent independence, professional, and technical standards.
Salary audit process conducted by Deloitte Vietnam Audit Company
Planning and designing audit methods
In the client acceptance phase, auditors and audit firms evaluate potential clients, continuing relationships with existing clients while assessing new requests for audits This process involves communication to determine whether the audit firm will accept the engagement Importantly, this step encompasses the entire audit process rather than individual cycles, and it does not specifically apply to payroll and employee audits A critical focus during this stage is the selection of the audit team, emphasizing the importance of choosing auditors who possess knowledge of the client's industry and business operations.
During the planning stage of an audit, as outlined in Vietnamese Auditing Standard 300, the auditor gathers crucial information about the client's industry, business operations, accounting systems, internal controls, and stakeholders to evaluate risks and effectively plan the audit This process involves assessing the likelihood of material misstatements, making an initial materiality assessment, and conducting analytical procedures to determine the audit's scope and necessary procedures Comprehensive knowledge of the client's business, including its industry and specific characteristics, is essential for a successful audit Auditors can obtain this baseline information through various sources, including direct interactions with clients, internet resources, books, and economic publications.
When conducting an audit, it is essential to review the results of the previous audit and the general audit file, as audit firms meticulously maintain records from prior years These files provide comprehensive information about the client, including the auditor's notes from the previous year, which highlight key areas requiring attention By analyzing this information, the auditor can efficiently update any changes for the new audit year.
+ Factory visit: Visual observation helps auditors have an overview of the production cycle, production methods, working style at the factory of employees What is collected guest
Relevancy and high reliability are obtained by the auditors themselves
In accordance with Vietnamese auditing standards, related parties encompass subordinates, official owners of the client company, branch companies, and any individuals or organizations that possess the ability to govern, control, or significantly influence the audit client's business or governance policies Additionally, auditors must assess the necessity of engaging external experts—individuals or organizations with specialized knowledge outside of accounting and auditing—during the planning phase of the audit If the involvement of these experts is deemed essential and their absence could impact the audit's outcome, auditors are obligated to request the relevant information.
To effectively audit the salary cycle and employees, auditors must gather essential background information, including the unit's salary and recruitment policies, labor contract termination regulations, and the separation of responsibilities between departments, particularly the labor organization and accounting departments They should also review previous audit results for an initial assessment of the salary cycle and conduct factory visits to monitor labor cycles, timekeeping records, labor productivity, and employee work styles In the case of foreign enterprises, it is crucial to identify stakeholders and consider individuals receiving salaries at overseas branches Generally, expert opinions are not commonly utilized in the audit of salary and employee cycles.
Collecting information about the client's legal obligations:
In the second step of the auditing process, the auditor collects vital information regarding the client's legal obligations This background data not only highlights the unique characteristics of the client's business but also informs the auditor about the legal processes that impact every facet of the client's operations.
During interactions with the client's Board of Directors, essential information is gathered, including the establishment license, company charter, financial statements, audit reports, and inspection records from current or previous years Additionally, minutes from shareholder and Board of Directors meetings, as well as significant contracts and commitments, are reviewed It's also important to examine the salary and employee cycle.
Auditors need to review labor contracts, decisions on appointment, dismissal, termination of contracts, minutes of salary increase decisions, etc to serve the audit process
Accurate assessment of materiality and risks is crucial in the planning phase of an audit, as it enables auditors to choose suitable procedures and reduce potential risks Auditors must evaluate factors that could lead to material misstatements in financial statements.
Materiality refers to the significance and nature of errors in financial information, which can impact the accuracy of judgments and lead to incorrect conclusions Accurately assessing materiality is crucial during financial statement audits, particularly in the planning stage, where auditors must evaluate materiality to determine the acceptable level of misstatement in the financial statements.
Auditors rely on their experience to make judgmental estimates, which play a crucial role in the initial assessment of materiality This assessment helps auditors gather the right amount of audit evidence, ensuring they focus on significant items while avoiding excessive evidence collection for less critical matters By doing so, auditors can minimize wasted effort and costs associated with audit fees, while also ensuring that material items are adequately supported by sufficient evidence.
When an auditor assesses low materiality, indicating a lower tolerable misstatement, they must gather more audit evidence compared to a scenario with high materiality In salary and employee cycle audits, it is essential for the auditor to evaluate materiality for the entire cycle and subsequently distribute that materiality to specific sub-items within the cycle, ensuring the collection of adequate audit evidence.
According to International Auditing Standard IGA No 25, audit risk refers to the possibility that an auditor may make unjustified judgments regarding financial information, leading to significant errors During the audit planning phase, auditors must evaluate three types of risks.
Inherent risks refer to errors that arise in the absence of effective internal control measures When evaluating inherent risk, auditors must take into account factors such as the client's business characteristics, management integrity, outcomes from prior audits, any unusual economic transactions, and last year's audit results.
Control risk refers to the likelihood of material misstatements occurring due to an ineffective or non-existent internal control system within a client’s organization Auditors evaluate control risk by examining the client's internal controls, determining whether the risk is high or low based on the effectiveness of these systems Conversely, detection risk pertains to the chance that errors or fraud remain undetected by both the internal control system and the auditor The professional qualifications and judgment of auditors play a crucial role in influencing the level of detection risk present in an audit.
Study the client's internal control system and assess control risk:
An effective internal control system is crucial for auditors, as it instills confidence and lowers control risk, allowing for reduced costs and efforts in evidence collection In contrast, a poorly performing system leads auditors to assess a high control risk, necessitating additional evidence gathering to support their opinions and enhance reliability.
The current status of the salary audit process in the audit of financial statements
The primary objective of an audit is to enable Deloitte staff to verify that company ABC's financial statements are prepared in accordance with applicable accounting standards and relevant laws, ensuring they provide a true and fair view in all material respects Each audit cycle has specific objectives that contribute to the overall goal of the audit In the context of the salary and employee cycle, these objectives focus on management's commitment to effectiveness, integrity, rights and obligations, as well as the accuracy and proper classification and presentation of financial information.
The primary goal of the audit is to thoroughly evaluate the salary and employee cycle, ensuring the accuracy and validity of all salary and employee transactions This involves gathering evidence to confirm that all significant financial information related to this cycle is presented in compliance with relevant accounting principles and regulations.
The objective of existence or occurrence in salary transactions mandates that all recorded salaries have genuinely occurred and are supported by appropriate documentation This includes ensuring that both cash expenses and unpaid salaries are accurately reflected in the records The primary aim is to prevent and detect fraudulent practices, particularly the overstatement of salaries, ensuring that only actual salaries are documented.
Completeness objectives focus on ensuring that all salary transactions are accurately recorded in the financial books, countering potential fraud and salary understatement If an enterprise fails to fully document salary payments, it risks misrepresenting costs, payables, and related assets like cash and bank deposits This incomplete reporting can lead to artificially reduced costs and inflated profits, ultimately distorting the true financial position of the business.
Businesses have a fundamental obligation to ensure timely salary payments to employees and government agencies, adhering to established regulations regarding salary deductions While the specifics of salary operations may seem less critical, non-compliance with these regulations can lead to employee turnover and warnings from state agencies or trade unions, emphasizing the importance of maintaining proper salary practices.
Ensuring accuracy in salary transactions is crucial, as it guarantees that the recorded values for eligible salary operations are correct Errors in salary calculations, bookkeeping, or fraudulent activities can lead to significant discrepancies in the amounts payable to employees and related assets Accurate pricing and measurement are essential for preparing tax reports and other salary-related obligations To mitigate the risk of calculation errors, organizations frequently designate an independent staff member to conduct a thorough review of salary computations and tax-related payments.
The classification and presentation of salary operations mandate that all salary expenses and employee payables be accurately recorded in designated accounts, adhering to the current accounting standards By categorizing salaries based on criteria such as department and employee function, businesses can prevent misstatements in cost accounts and ensure accurate inventory valuations.
Carry out the necessary work to prepare for the audit planning work:
Review the current internal control system base on the graph of internal control system :
Evaluating the internal control system enables auditors to determine their confidence level in its effectiveness, thereby reducing the necessity for extensive testing while maintaining audit quality.
To effectively assess control risk and plan the audit for ABC Company, auditors must thoroughly understand the company's internal control system During the pre-planning phase, several issues have been identified that could impact the audit process.
• Identify possible types of material misstatement such as the nature of the company is different, payroll mistakes, skip of process when recruiting
• Consider factors affecting the likelihood of material misstatement: although the internal control system is tight, there are still gaps in recruitment
• Design audit methods of ABC company salary audit as follow: inquiry, inspect of evidence, computer assist, observation
The evaluation of ABC Company's internal control system, focusing on governance control, reveals that despite effective planning, organizing, and leading, the business model remains incomplete Control is a crucial managerial function that must be executed by every manager, regardless of whether departmental outcomes align with established plans ABC Company’s managerial controls encompass various strategies to ensure operational effectiveness and accountability.
• Division of responsibilities between sections:
• Development and preparation of computer operating data
• Control computer operators using: Guidance on administrative procedures, working schedules and rotation of duties
• File identification procedure using: Tangible reference number, guard ring, header label check setup Procedures for resetting, fire prevention and waiting arrangements
Evaluation of the internal control system through parameter 2 – System development control
Control the development of the system to ensure a valid system every time new applications are generated, meeting the requirements of management and users To do this make sure:
To ensure effective management of applications, it is essential to utilize standard documentation and procedures, while implementing strict authorization processes for any new applications or modifications to existing programs Additionally, conducting thorough pre-implementation testing and establishing a robust system for program and document security are crucial steps in safeguarding the integrity of the system.
Evaluation of internal control of ABC company through parameter 3 – Procedural control
Input control: Set control: procedure, check word, data fields containing important reference data Verify the conversion to make sure all errors are fixed
Processing controls: to ensure that all rejections are reliably and promptly re- processed
Output control is essential for ensuring that printouts provide sufficient information for tracing source documents, verifying calculations, and validating computer-generated totals, thereby establishing an effective audit trail It is crucial to check the input data for completeness and accuracy, while also distributing the output to confirm that all prints are correct and that users have received the complete set of outputs intact.
Integrity of the Board of Directors of ABC company
An overview of management integrity of ABC company provides insight into management practices, practices, and issues related to salary fraud and error
About salary accounting at the enterprise
Company ABC has a fiscal year starting from 1/1/200X to 31/12/200X, the recording form is General Journal, the reporting currency is USD
About the salary calculation method applied
In ABC Company, monthly salary = Salary + allowances (if any)/standard workday
X Number of actual working days
Or: Monthly salary - salary/standard day salary of the month X number of days of unpaid leave
Note: Standard working day is the number of working days in a month For example, a company has a policy that works from Monday to Friday, Saturday and Sunday off
In April, there are 22 official working days, accounting for 8 days off This clear calculation simplifies salary assessments for employees, as the deduction for each unpaid day is consistent Employees will have their salaries adjusted based on the number of days they take off; therefore, if there are no changes in salary, those who work the full month will receive their complete pay.
The salary structure for the Sales & Marketing Department can be linked to revenue generation, where employee compensation is determined by their performance Employees receive salaries and bonuses based on the sales they achieve relative to established targets and the company's compensation policy This approach is commonly utilized for sales personnel and related roles.
About recruiting and managing employees in ABC company
The recruitment process begins with the approval of the request by the department head and director The human resources department will then publicize the vacancy and select qualified candidates for interviews, with results documented in an interview report Following the final interview, conducted by the director, a contract will be signed within three months Personnel files will be completed subsequently and maintained by the HR director at ABC If this procedure fails, the company will engage a reputable recruitment agency Each employee is assigned a unique code and employee card, which may be subject to change at the start of the year.
Step1: Learn about audit and risk assessment clients:
Comments for current status of salary audit process of Deloitte Vietnam Audit
This recommendation is based on subjective opinions derived from a survey of Deloitte staff The author employed a structured interview method, drawing on personal experiences at Deloitte to formulate questions and ensure a thorough understanding of the processes involved To enhance the authenticity of the findings, a semi-structured interview format was also utilized, allowing for additional insights and comments regarding the process.
To assess the level of consent regarding backlogs, their causes, and solutions for collecting external confirmation evidence at Deloitte, a questionnaire was distributed via Google Sheets Utilizing a 5-point Likert scale ranging from "Strongly disagree" to "Strongly agree," the author successfully collected 100 valid responses, with all questions answered in full The survey results provided a comprehensive analysis of the backlogs and their underlying causes.
Deloitte Vietnam Co., Ltd follows a standardized audit process that includes planning, implementation, and closing, making it accessible for new employees familiar with academic theories This uniform approach, along with the presentation of working papers in English, facilitates seamless collaboration between Deloitte Vietnam and its international counterparts As a result, auditors transitioning to Deloitte offices worldwide can adapt easily, as all adhere to both Vietnamese and international auditing standards.
* About the step by step audit of the salary cycle and employees:
Step 1: Get to know the customer in general:
The audit process is typically led by senior team members, such as the audit team leader, whose extensive experience ensures the accuracy and reliability of the information gathered This is crucial, as insights into the client's business operations enable auditors to tailor their audit methods for salary and employee cycles effectively Given the limited time auditors spend with each client—approximately one per week—having a comprehensive understanding of the market and competitive landscape is essential Additionally, new regulations impacting clients, including bookkeeping and financial year protocols, significantly enhance the auditors' efficiency in their work.
Step 2: Get a general understanding of the salary and employee cycle:
Deloitte's auditors understand the critical role of gathering information about the client’s operational cycle, including recruitment, dismissal, salary, allowances, and leave policies This knowledge serves as an effective tool for auditors to comprehend client behavior and utilize estimation models to initiate the audit process.
During the audit process, auditors utilize standardized procedures while adapting techniques to each specific client, aided by AS/2 audit software for efficiency The collaboration among auditors enhances productivity, allowing them to share insights and streamline tasks, particularly for those new to accounting or auditing Clear and well-organized working papers are crucial, as they facilitate understanding and improve the quality of the audit Senior auditors play a vital role in reviewing and providing feedback, ensuring high-quality control and accuracy in the work produced Deloitte Vietnam emphasizes the development of new auditors, assigning simpler tasks to first-year assistants while maintaining oversight and guidance Selecting appropriate samples for detailed examination is critical, often focusing on high-level individuals to ensure accuracy At the conclusion of the audit, the team leader compiles and reviews working papers before passing them to higher management for feedback This culminates in a management letter that addresses client weaknesses, aiding in the improvement of their accounting systems and easing future audits.
3.4.2 Disadvantages in audit process in Deloitte Vietnam Limited Company
When auditing, it is crucial to gather both new and existing information about salaries and employee cycles However, auditors often focus solely on new data for long-standing clients, neglecting previous information, which can lead to subjective assessments Additionally, the high workload during peak seasons often results in auditors overlooking general information due to time constraints.
A salary audit, typically conducted by senior auditors, often leads to work backlog and confusion within the organization The implementation of analytical procedures during payroll and employee cycle audits is crucial, as outlined in ISA 520, which emphasizes the necessity of performing these procedures during both the planning and overall review phases of the audit These analytical procedures play a vital role not only in the salary audit but also in the broader context of financial statement audits, ensuring accuracy and compliance throughout the auditing process.
During the payroll cycle audit, analytical procedures play a crucial role across all three audit stages However, recent practices by auditors primarily emphasize specific financial ratios and the comparison of salary costs over different time periods This approach often overlooks the essential benchmarking against industry norms or peer companies, which is vital for a comprehensive assessment of client performance, management capabilities, and development trends.
When conducting audits, it is crucial to select a highly representative sample, typically achieved through either probability or non-probability sampling methods Deloitte Vietnam frequently employs software for sample selection or utilizes the auditor's professional judgment, particularly in monetary unit sampling However, in cases where the sample population is extensive, auditors may focus on larger value samples, often neglecting smaller elements This approach increases the risk of sampling, as smaller items may harbor systematic frauds and errors that go undetected.
Evaluating the internal control system is a critical task for auditors, starting from the planning phase of the audit In the salary and employee cycle, however, the intrinsic risks are often underestimated, leading to a lack of emphasis on implementing effective control procedures As a result, interview questions and control procedures tend to be conducted in a rather superficial manner.