When it comes to ensuring business transparency, auditing plays a very significant role. Auditing entails checking and verifying the accuracy of financial statements in order to provide the most accurate information about an organization’s financial status. As a result, Vietnamese law imposes stringent auditing regulations. In this article, LSX legal firm would like to provide you information about: “Cases requiring audit of financial statements in Vietnam”
Legal grounds
- Law on Independent Audit 2011
- Law on accounting 2015
- Decree 17/2012/ND-CP
- Circular 40/2020/TT-BTC
What is auditing?
Independent audit means the practice of practicing auditors, auditing firms, and branches of foreign auditing firms in Vietnam to examine and give their independent opinions on financial statements and audit work according to the audit contract.
An auditor is a person who is granted an audit certificate in accordance with the law or a person who holds a foreign certificate recognized by the Ministry of Finance and has passed an examination on Vietnamese law.
Auditing practice means the audit service business activities of practicing auditors and auditing firms, branches of foreign auditing firms in Vietnam.
Audit standards and professional ethical standards of accounting and auditing
Auditing standards mean the rules and guidelines on the requirements, principles, auditing procedures, and handling of the relationship arising from audit activities that members participating in the audit and the auditing firms, branches of foreign auditing firms in Vietnam must comply with.
Professional ethical standards of accounting and auditing mean the rules and guidelines on principles, contents of the application of professional ethical standards for members participating in the audit and auditing firms, and branches of foreign auditing firms in Vietnam.
Auditing standards and professional ethical standards of accounting and auditing are the bases to inspect and evaluate the quality of audit and professional ethics of members participating in the audit and auditing firms, and branches of foreign auditing firms in Vietnam.
Ministry of Finance stipulates auditing standards and professional ethical standards of accounting and auditing on the basis of international standards.
Audit statement under Vietnamese legislation
The audit statement means the written report made by practicing auditors, auditing firms, and branches of foreign auditing firms in Vietnam after the completion of the audit, giving opinions on financial statements and other contents audited under the audit contract.
Value of the audit statement:
Firstly, the audit statements on financial statements assess the honesty and rationality of the financial statements in conformity with accounting standards, the accounting regime issued by competent agencies or organizations.
Secondly, compliance audit statements assess the compliance with laws, rules, and regulations in the management and use of money, property, and other resources of the audited units.
Thirdly, operation audit statements assess the economy, effectiveness, and efficiency in management and use of money, property, and other resources in the audited units.
Fourthly, audit statements used for:
- Shareholders, investors, and parties participating in the joint venture, association, customers, and other organizations and individuals having direct interests or related to the audited units to handle relations on rights and obligations of stakeholders;
- State agencies manage and administer under functions and assigned tasks;
- Audited units detect, handle, and prevent timely errors and weaknesses in the operation of the units.
Financial statement under Vietnamese legislation
Financial statement means a system of financial information of an accounting unit demonstrated according to a form provided for by accounting standards and accounting regime.
Purposes of financial statements:
Financial statements are used to provide information about financial situations, trading performance and cash flows of enterprises, meet the requirements for management of employers, regulatory agencies and useful demands of users in making economic decisions. Financial statements must provide information about an enterprise about :
- Firstly, assets;
- Secondly, liabilities;
- Thirdly, owner’s equity;
- Fourthly, revenue, other income, production and business costs and other expenses;
- Also, profit, loss and allocation of income ;
- Lastly, the cash flows.
In addition to this information, an enterprise must also provide other information in the “Notes to the Financial Statements” for further explanation of standards recorded in general financial statements and accounting policies applied to record the economic transactions arising, preparation and presentation of financial statements.
The role of financial statements:
- Firstly, provide necessary economic and financial indicators to identify and comprehensively check the situation of production and business activities of enterprises.
- Secondly, provide necessary data and documents for the analysis of economic and financial activities to identify and assess the business situation, financial status, and efficiency of capital use of the enterprise.
- Thirdly, based on the data shown in the financial statements to analyze, detect economic potential, predict the situation, operating trends of the business to make the right and effective decisions.
- Fourthly, provide data for appropriate production, business and investment planning.
Audited entities
Enterprises and organizations whose annual financial statements, as prescribed by law, must be audited by the audit firm, branches of the foreign audit firm in Vietnam, include:
- Firstly, enterprises with foreign owned capital.
- Secondly, credit institutions established and operate under the Law on credit institutions, including branches of foreign banks in Vietnam.
- Thirdly, financial organizations, insurance companies, reinsurance companies, insurance brokerage companies, and branches of foreign non-life insurance companies.
- Fourthly, public companies, securities issuing organizations, and securities trading organizations.
Other enterprises and organizations subject to compulsory auditing under relevant provisions of law.
Enterprises and organizations subject to audit by the audit firm and branches of foreign audit firms including:
- Firstly, state enterprises, except those operating in the field of state secrets as prescribed by law; must be audited for the annual financial statements.
- Secondly, enterprises, and organizations implementing the national important projects; group-A projects using state funds; except for the projects in the field of state secrets as prescribed by law; must be audited for the settlement report of project completion.
- Thirdly, enterprises and organizations with 20% or more of the voting rights held by state groups, and state corporations at the end of the fiscal year must be audited for annual financial statements;
- Fourthly, enterprises with 20% or more of the voting rights held by securities listing, issuing, and trading organizations; at the end of the fiscal year must be audited for annual financial statements.
- Lastly, the audit firm and branches of foreign audit firms in Vietnam must be audited for annual financial statements.
Notes on audited financial statements
Enterprises and organizations subject to the audit of annual financial statements as stipulated in Clause 1 and Clause 2 of Article 15 of Decree 17/2012/ND-CP, if prescribed by law, must make the consolidated or comprehensive financial statements must implement audit for consolidated or general financial statements.
The audit of financial statements and settlement reports of project completion applicable to enterprises and organizations as stipulated in points a and b Clause 2 of Article 15, Decree 17/2012/ND-CP shall not substitute the audit by State Audit.
Other enterprises and organizations voluntary to audit.
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Related questions
Accountants must comply with regulations of law on accounting, perform given tasks, and take responsibility for their performance. When an accountant is replaced, the replaced accountant shall hand over his/her works and documents to the replacing accountant. The replaced accountant is still responsible for the accounting works done during his/her practice.
A fine ranging from VND 40,000,000 to VND 50,000,000 for audited entities that do not perform mandatory audits of financial statements, completed project finalization statements, consolidated financial statements, general financial statements, and other audits according to the provisions of the law on independent audit and other relevant laws.
Compliance with the law and taking responsibility before the law on occupational activity and audit statements.
Compliance with audit standards and professional ethical standards of accounting and auditing of Vietnam; for the audits under the audit contracts that required to apply the other audit standards shall comply with such audit standards.
Independence, honesty, objectivity.
Information confidentiality.
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