What is independent audit?

1/7/2021

What is independent audit?  

Pursuant to the Article 5, Law on Dependent audit No.67/2011/QH12, there are some related definitions as follow: 

“1. Independent audit means practicing auditors, auditing firms, branches of foreign auditing firms in Vietnam inspect and give out their independent opinions on the financial statements and other audit works under the audit contract. 

Specifically, there are different types of audits: 

9. Financial statement audit means the one that practicing auditors, auditing firms, branches of foreign auditing firms in Vietnam inspect, give out their opinions on the trueness and fairness, in key respects, of the financial statements of the audited units in accordance with provisions of auditing standards. 

10. Compliance audit means the one that practicing auditors, auditing firms, branches of foreign auditing firms in Vietnam inspect and give their opinions on the compliance with laws, regulations, provisions that the audited units shall perform. 

11. Operation audit means the one practicing auditors, auditing firms, branches of foreign auditing firms in Vietnam inspect and give their opinions on the economic performance, effectiveness and efficiency of operation of a part or the whole audited unit.” 

 

Who are subjects of compulsory independent audit? Are the Consolidated and compiled Financial Statements subject to independent audit? 

According to Article 15 Decree No.17/2012/NĐ-CP: 

1. Enterprises and organizations whose annual financial statements, as prescribed by law, must be audited by audit firms, branches of foreign audit firms in Vietnam, include: 

a) Enterprises with foreign owned capital; 

b) Credit institutions which are established and operating under the Law on credit institutions, including branches of foreign banks in Vietnam; 

c) Financial organizations, insurance companies, reinsurance companies, insurance brokerage companies, branches of foreign non-life insurance companies. 

d) Public companies, securities issuing organizations and securities trading organizations. 

2. Other enterprises and organizations are subjects of compulsory auditing under relevant provisions of law. 

3. Enterprises and organizations subject to audit by the audit firm and branches of foreign audit firms including: 

a) State enterprises, except those operating in the field of state secrets as prescribed by law, must be audited for the annual financial statements; 

b) Enterprises, 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; 

c) Enterprises and organizations with 20% or more of the voting rights held by state groups, state corporations in the end of the fiscal year must be audited for annual financial statements; 

d) 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; 

e) The audit firm, branches of foreign audit firms in Vietnam must be audited for annual financial statements. 

4. Enterprises and organizations subject to the audit of annual financial statements as stipulated in Clause 1 and Clause 2 of this Article, if as prescribed by law, must make the consolidated or compiled financial statements and have them independently audited by auditing firms. 

5. The audit of financial statements and settlement reports of project completion applicable to enterprises and organizations as stipulated in point a and b Clause 2 of this Article shall not substitute the audit by State Audit. 

6. Other enterprises and organizations which are voluntary to be audited. 

 

What are the benefits of independent audit? 

For enterprises and organizations: 

Besides helping ensure compliance with regulations (if required by laws), independent audit can bring them additional benefits as follow: 

  • An audited report provides invaluable credibility of the data transparency and the enterprise’s performance to banks, investment funds, investors and business partners. This will help the enterprises to earn more advantages in trading and business negotiation. Enterprises having annual audit are likely to be more reliable than ones only having audit when required. 
  • From risk management perspective, external audit can be used as an effective protection tool of the enterprise’s risk management system, which helps reduce the risk to an acceptable level.  
  • From the management perspective, accounting and tax reports being annually examined by the external party will improve the efficiency of accounting and tax department. The auditor’s financial expertise and experience will help the enterprises enhance their weaknesses and also provide them with new ideas and perspectives. 

For users of financial statements: 

  • Independent audit adds credibility to the published information and figures, which helps users easier to make decisions. 

For the economy: 

  • Independent audit will enhance the reliability and transparency of the figures of the enterprises, which facilitates the amount and pace of the transactions in the economy. Without independent audit or the quality of the audit is sufficient, the high risk of fraud and misstatement will lose the faith of investors and market, which finally damages of the business and economy in a whole. 
  • From a broader perspective, auditors’ advices and related recommendations help enterprises improve their management system in a whole and the risk management system in particular. This is not only beneficial to stakeholders but facilitates the economy development.