Decree No. 105/2004/ND-CP on Independent Auditing

DECREE

On independent auditing

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;
Pursuant to Article 34 of the Accounting Law promulgated on June 17, 2003;
At the proposal of the Minister of Finance,

DECREE

PART I

GENERAL PROVISIONS

Article 1. This Decree stipulates on auditors, auditing firms, the value of audit results, mandatory audit cases, and other relevant provisions concerning independent auditing activities to unify the management of independent auditing activities, determine the rights and responsibilities of audited entities and auditing firms, protect the interests of the community and the legitimate rights of investors, ensure the provision of truthful, reasonable, and transparent economic and financial information, meeting the management requirements of state agencies, businesses, and individuals.

Article 2. Definitions

In this Decree, the following terms are understood as follows:

1. Independent auditing: is the verification and confirmation by auditors and auditing firms of the truthfulness and reasonableness of accounting documents, figures, and financial reports of enterprises and organizations (collectively referred to as audited entities) upon request from these entities.

2. Auditor: is a person who meets the criteria and conditions for practicing independent auditing as prescribed in Article 13 and Article 14 of this Decree.

3. Practicing auditor: is an auditor who has registered to practice at an auditing firm established and operating under Vietnamese law and is permitted to sign on audit reports.

4. Auditing firm: is a business entity established and operating in accordance with Vietnamese laws on establishment and operation of businesses and as prescribed in this Decree.

5. Audit standards: are regulations and guidelines on audit principles and procedures serving as the basis for auditors and auditing firms to conduct audits and quality control of audit activities.

6. Audit report: is a written report prepared and published by auditors and auditing firms expressing their formal opinion on the financial statements of an audited entity.

Article 3. Value of audit results

Accounting documents, figures, and financial reports of audited entities, after being verified and confirmed by auditors and auditing firms, serve as reliable bases for:

1. State agencies and superior units to use for management and operation according to their assigned functions and tasks;

2. Shareholders, investors, joint venture partners, customers, and other organizations and individuals to handle relationships regarding the rights and obligations of related parties during the operation of the entity;

3. Assisting audited entities to promptly identify, address, and prevent possible errors in their operations, contributing to the public disclosure of financial statements, serving management and operation of the entity, and fostering a healthy investment environment.

Article 4. Principles of independent auditing activities

1. Compliance with laws and Vietnamese audit standards.

2. Legal responsibility for professional activities and audit results.

3. Adherence to auditing professional ethics.

4. Ensuring professional independence, interest independence, and the truthfulness, legality, and objectivity of independent auditing activities.

5. Confidentiality of audited entity's information, except when the audited entity agrees or otherwise provided by law.

Article 5. Rights of audited entities

The audited entity has the right to select an auditing firm and an auditor who meet the lawful practice conditions prescribed in Article 23 of this Decree to enter into a service audit contract, unless otherwise provided by law.

Article 6. Responsibilities of audited entities

1. Timely and fully provide all necessary truthful information and documents for the audit.

2. Cooperate and create favorable conditions for auditors to carry out the audit.

3. Fully and promptly pay audit fees as agreed in the contract.

4. In case of entering into an audit contract with an auditing firm for three consecutive years or more, they must require the auditing firm to change the practicing auditor and the person responsible for signing the audit report.

Article 7. Right to participate in professional organizations

1. Practicing auditors and auditing firms have the right to join professional organizations in accounting and auditing.

2. Professional organizations in auditing, when entrusted with the responsibility to manage the practice of auditors, must establish management regulations and perform other tasks as prescribed by law.

Article 8. Foreign auditing organizations conducting auditing activities in Vietnam

Foreign organizations and individuals conducting auditing activities in Vietnam must comply with the Law on Foreign Investment in Vietnam and the provisions of this Decree, except where otherwise provided in international treaties to which the Socialist Republic of Vietnam is a party or member.

Article 9. Encouragement of auditing

The State encourages all businesses and organizations to hire auditing firms to conduct annual financial statement audits or project final account audits before submitting them to competent state authorities or before financial disclosure.

Article 10. Mandatory auditing

1. Annual financial statements of the following enterprises and organizations must be audited by auditing firms:

a) Enterprises with foreign investment capital;

b) Organizations engaged in credit, banking activities, and Development Support Funds;

c) Financial organizations and insurance companies;

d) For joint-stock companies and limited liability companies participating in listing and trading on the securities market, they shall conduct audits in accordance with laws on securities trading; if they borrow from banks, they shall conduct audits in accordance with laws on credit.

2. Annual financial statements of the following enterprises and organizations must be audited in accordance with this Decree:

a) State enterprises;

b) Final accounts of construction investment capital of projects belonging to Group A.

3. Other subjects as prescribed by laws, ordinances, decrees, and decisions of the Prime Minister.

4. State-owned enterprises, Development Support Funds, and investment projects already included in the State Audit Office's annual audit plan announcement are not required to have their financial statements audited by auditing firms that year.

Article 11. Enterprises and organizations that are required to audit their financial reports according to Article 10 of this Decree must enter into an audit contract with an auditing firm no later than thirty days before the end of the accounting year.

Article 12. It is strictly prohibited for any organization or individual to interfere in the selection of auditors and auditing firms by the audited entities, except where otherwise provided by law.

Chapter II

AUDITORS

Article 13. Auditor Standards

1. Auditors must meet the following criteria:

a) Possess professional ethics, honesty, integrity, and a sense of compliance with laws; not be within the scope defined in Clause 3, 4, 5, 6, and 7 of Article 15 of this Decree;

b) Hold a bachelor's degree in Economics-Finance-Banking or Accounting-Audit and have at least five years of practical experience in finance and accounting, or at least four years of practical experience as an audit assistant in an auditing firm;

c) Be capable of using a common foreign language and proficient in computer usage;

d) Hold an Auditor Certificate issued by the Minister of Finance.

2. Individuals holding a specialist accountant certificate or an accounting-audit certificate issued by a foreign organization or international organization on accounting and auditing, recognized by the Ministry of Finance of Vietnam, must pass an examination on Vietnamese economic, financial, accounting, and auditing laws organized by the Ministry of Finance and obtain an Auditor Certificate from the Minister of Finance to be recognized as an auditor.

3. The Ministry of Finance shall stipulate the content of the examination, the examination board, procedures for issuing and revoking the Auditor Certificate.

Article 14. Conditions for practicing auditors

1. Vietnamese individuals meeting the following conditions shall be recognized as practicing auditors and registered to practice independent auditing:

a) Meeting the auditor standards prescribed in Clause 1 or Clause 2 of Article 13 of this Decree;

b) Having a labor contract working in an auditing firm established and operating under Vietnamese law, except where Vietnamese law provides otherwise regarding labor contracts.

2. Foreign individuals meeting the following conditions shall be recognized as practicing auditors and registered to practice independent auditing in Vietnam:

a) Meeting the auditor standards prescribed in Clause 1 or Clause 2 of Article 13 of this Decree;

b) Being permitted to reside in Vietnam for at least one year;

c) Having a labor contract working in an auditing firm established and operating under Vietnamese law.

3. At any given time, an auditor may only be registered to practice in one auditing firm. In cases where an auditor has been registered for independent auditing but is not actually practicing or is simultaneously practicing in another auditing firm, they will be removed from the list of registered independent auditors.

4. Individuals registering for independent auditing for the second time or more must also meet the condition of fully participating in the annual knowledge update program as prescribed by the Ministry of Finance.

Article 15. Persons who are not eligible to register for independent auditing

1. Not meeting the conditions prescribed in Article 14 of this Decree.

2. Civil servants as defined by the law on civil servants.

3. Individuals currently banned from auditing activities pursuant to court judgments or decisions, individuals currently being prosecuted for criminal responsibility, individuals currently serving a prison sentence or have been convicted of any of the economic crimes or crimes related to financial-accounting positions and have not yet had their criminal records expunged.

4. Currently under administrative supervision.

5. Restricted or lacking civil capacity.

6. Previously convicted of serious or extremely serious economic offenses.

7. Individuals whose actions have caused significant damage to financial, accounting, auditing, and economic management activities and have been disciplined with a warning or higher level of punishment within the last three years.

Article 16. Rights of practicing auditors

1. Independence in professional matters.

2. Conducting audits of financial statements and services provided by auditing firms as stipulated in Article 22 of this Decree.

3. Requesting audited entities to provide complete and timely accounting documents and other relevant materials and information related to service contracts.

4. Checking and verifying economic and financial information related to audited entities both inside and outside the entity. Seeking professional appraisals or consultations from relevant units or individuals when necessary.

Article 17. Obligations of practicing auditors

1. Adhering to the principles of independent auditing operations as prescribed in Article 4 of this Decree.

2. During the provision of services, auditors must not interfere in the affairs of the audited entity.

3. Signing the audit report and bearing responsibility for their professional activities.

4. Refusing to conduct audits for clients if they determine that they lack the necessary expertise, do not meet the requirements, or if the client violates the provisions of this Decree.

5. Continuously updating professional knowledge and experience. Implementing the annual knowledge update program as prescribed by the Ministry of Finance.

6. Practicing auditors violating Articles 15, 17, 18, and 19 of this Decree shall be subject to temporary suspension, permanent ban from registration for independent auditing, or legal responsibility depending on the nature and severity of the violation.

7. Other obligations as prescribed by law.

Article 18. Practicing auditors shall not perform audits in the following circumstances:

1. Not listed in the announcement of the list of practicing auditors.

2. Currently performing bookkeeping, preparing financial statements, conducting internal audits, or providing asset valuation, management consulting, or financial consulting services for the audited entity, or having performed such tasks in the previous year.

3. Having economic-financial relations with the audited entity such as capital contributions or purchasing shares.

4. Having parents, spouse, children, siblings, or half-siblings who are members of the leadership board or chief accountants of the audited entity.

5. The audited entity makes demands contrary to professional ethics or professional requirements for auditing or contrary to legal provisions.

Article 19. Prohibited acts for practicing auditors

1. Purchasing any type of stock, regardless of quantity, from the audited entity.

2. Purchase bonds or other assets of the audited entity.

3. Receive any amount of money or material benefits from the audited entity outside the agreed service fee and costs in the contract, or take advantage of their position as an auditor to obtain other benefits from the audited entity.

4. Lease, lend, or allow other parties to use their name and auditor certification to perform professional activities.

5. Work for two or more auditing firms at the same time.

6. Disclose information about the audited entity that they know while performing their duties, except where the audited entity consents or otherwise provided by law.

7. Engage in other acts prohibited by auditing laws.

Chapter III

AUDITING FIRMS

Article 20. Auditing firm

1. An auditing firm is established and operates according to the provisions of the law in the forms of a partnership company, a private enterprise, and a foreign-invested enterprise under Vietnamese law.

2. The establishment, organization, management, and operation of an auditing firm must comply with the provisions of the law on enterprises and this Decree.

3. State-owned auditing companies, joint-stock auditing companies, and limited liability auditing companies established and operating according to the law on enterprises before the effective date of this Decree are permitted to convert to one of the three types of enterprises specified in Clause 1 of this Article within three years from the effective date of this Decree.

4. When changing its name, address, field of practice, or list of auditors, the auditing firm must notify the Ministry of Finance in writing no later than ten days after making such changes.

Article 21. Branches of auditing firms

1. A branch of an auditing firm is a subsidiary unit of the auditing firm, operating under the authorization of the auditing firm, consistent with the field of practice recorded in the business registration certificate of the auditing firm.

2. A branch of an auditing firm is established and operates according to the provisions of the law on establishing branches, and the head of the branch of an auditing firm must be a practicing auditor meeting the standards and conditions stipulated in this Decree.

3. The auditing firm must be responsible for the operations of the audit branches it establishes.

Article 22. Types of services provided:

1. An auditing firm may register to provide the following audit services:

a) Financial statement audit;

b) Financial statement audit for tax purposes and tax settlement services;

c) Operational audit;

d) Compliance audit;

đ) Internal audit;

e) Audit of final investment capital report (including annual financial statements);

g) Audit of project settlement reports;

h) Financial information audit;

i) Review of financial information based on prior-agreed procedures.

2. An auditing firm may register to provide the following additional services:

a) Financial advisory;

b) Tax advisory;

c) Human resource advisory;

d) Information technology application advisory;

đ) Management advisory;

e) Accounting services;

g) Asset valuation services;

h) Training and updating knowledge in finance, accounting, and auditing;

i) Other related financial, accounting, and tax services as prescribed by law;

k) Review of financial statements.

3. An auditing firm shall not register to conduct or engage in businesses unrelated to the services specified in Clauses 1 and 2 of this Article.

Article 23. Conditions for establishment and operation of auditing enterprises

1. An auditing enterprise may only be established when it has at least three auditors holding a Professional Practice Certificate, including at least one of the enterprise's management personnel must be an auditor holding a Professional Practice Certificate.

2. Within thirty days from the date of issuance of the Business Registration Certificate, the auditing enterprise must notify the Ministry of Finance of its establishment and provide a list of auditors practicing at the enterprise.

3. During the course of operation, the auditing enterprise must continuously ensure that there are at least three practicing auditors. If the auditing enterprise fails to meet this condition for six consecutive months, it must cease providing auditing services.

Article 24. Rights of auditing enterprises

1. To perform services recorded in the Investment License or Business Registration Certificate; to refuse to perform services if deemed insufficiently qualified or capable, or if they violate professional ethics principles.

2. To hire domestic and foreign experts to carry out service contracts or cooperate with other auditing enterprises according to the provisions of the law.

3. To establish branches as stipulated in Article 21 of this Decree, or to set up operating bases abroad in accordance with the law.

4. To participate in professional organizations related to auditing; to become members of international auditing organizations.

5. To request the audited entity to provide complete and timely accounting documents and other relevant materials and information necessary for the service contract.

6. To verify and confirm economic and financial information related to the audited entity both within and outside the entity. To request specialized appraisals or consultations from units or individuals with authority when necessary.

7. To exercise other rights as prescribed by law for enterprises.

Article 25. Obligations of auditing enterprises

1. To operate within the scope of practice recorded in the Investment License or Business Registration Certificate.

2. To fulfill the contents of the contracts signed with customers.

3. To compensate for damages caused by the fault of their auditors while performing auditing services and related services.

4. To purchase professional liability insurance for auditors or to establish a Risk Reserve Fund according to the regulations of the Ministry of Finance to create a source for compensating damages caused by the enterprise's fault to customers. The cost of purchasing insurance or establishing a Risk Reserve Fund is included in business expenses according to the regulations of the Ministry of Finance.

5. During the auditing process, if violations of financial and accounting laws are discovered in the audited entity, the auditing enterprise has the obligation to inform the audited entity or to record comments in the audit report.

6. To provide audit files and documents upon written request of competent state agencies as prescribed by law.

7. To fulfill other obligations as prescribed by law on enterprises.

Article 26. Responsibilities of auditing enterprises

1. To directly manage the professional activities of auditors practicing at the enterprise. To bear civil responsibility for professional activities carried out by auditors related to the auditing enterprise.

2. All services provided to customers must be documented in service contracts or commitment letters according to the provisions of the Contract Law and auditing standards.

3. To fully comply with the terms of the signed service contracts.

4. To be responsible before the law, customers, and users of the audit results and services provided.

5. To organize self-quality control and to be subject to quality control of auditing activities by the Ministry of Finance or professional organizations related to auditing.

Article 27. Auditing enterprises shall not conduct audits in the following cases:

1. Not notifying the Ministry of Finance of the list of practicing auditors.

2. Providing bookkeeping services, preparing financial statements, internal auditing services, asset valuation, management consulting, or financial consulting services to the client in the previous year.

3. Members of the Board of Directors of the auditing enterprise have economic or financial relations with the audited entity or are parents, spouses, children, siblings, or blood relatives of members of the Board of Directors or Chief Accountants of the audited entity.

4. The audited entity makes demands contrary to professional ethics or professional requirements of auditing or contrary to the provisions of the law.

Article 28. Prohibited acts for auditing enterprises

1. Colluding or conspiring with the audited entity to distort the content of financial reports.

2. Purchasing or accepting gifts of any type of shares, regardless of quantity, from the audited entity.

3. Purchasing bonds or other assets from the audited entity.

4. Suggesting or receiving remuneration in any form other than audit fees and costs listed in the contract or taking advantage of the enterprise's position to obtain other benefits.

5. Using material benefits, third-party relationships, bribery, coercion, or inducements against the audited entity when providing services or seeking clients.

6. Accepting to perform debt collection work for the audited entity.

7. Allowing others to use the name of the auditing enterprise to carry out professional activities.

8. Other activities contrary to the provisions of the law.

Article 29. Audit Reports

1. Independent auditing work is conducted by auditors and auditing enterprises. Upon completion of the auditing work, the auditors and the auditing enterprise must prepare an audit report, clearly stating the opinion on the audit results.

2. The audit report must be independent, objective, truthful, and signed by the practicing auditor who conducts the audit and the legal representative of the auditing firm or a person authorized in writing by the legal representative to sign and stamp it. The practicing auditor and the auditing firm shall be liable under the law and before the audited entity for their audit opinion.

3. One of the two signatures of the auditor on the audit report of a foreign auditing organization established and operating in Vietnam or not yet established in Vietnam must be that of a Vietnamese citizen, except in cases provided for in Clause 3, Article 30 of this Decree.

Article 30. Foreign auditing organizations

Foreign auditing organizations that have not established a branch in Vietnam may conduct audits in Vietnam in the following cases, unless otherwise stipulated in international treaties to which the Socialist Republic of Vietnam is a party or has joined:

1. After admitting a Vietnamese auditing firm established and operating under Vietnamese law as a member, they shall conduct audits under the name of the foreign organization and the member organization.

2. Cooperating with a Vietnamese auditing firm established and operating under Vietnamese law in individual audits, the audit report must bear the signature of the Vietnamese auditing firm.

3. If they wish to independently conduct an audit in Vietnam and circulate the audit report in Vietnam, they must obtain approval from the Ministry of Finance for each audit.

Article 31. Termination of operations of auditing firms and auditing firm branches

Auditing firms and auditing firm branches shall cease operations in the following cases:

1. Voluntary cessation of operations;

2. Revocation of Investment License or Business Registration Certificate;

3. Other cases as prescribed by laws on enterprises.

Article 32. Audit service fees and other service fees

1. An auditing firm may charge audit service fees for services provided by the firm. The audit service fee shall be agreed upon between the auditing firm and the audited entity in the audit contract based on the following criteria:

a) The content, volume, and nature of work determined in the audit contract;

b) The time and working conditions of the practicing auditor used to perform the service;

c) The qualifications, experience, and reputation of the auditor and the auditing firm;

d) In case a state agency prescribes the audit fee rate, it shall be based on the prescribed audit fee rate for each type of audit service.

2. The auditing firm and the audited entity may agree to apply one of the following methods to calculate audit service fees:

a) By the number of hours worked by the practicing auditor and the hourly fee rate;

b) For each audit service at a fixed fee;

c) For each audit service at a fee rate calculated as a percentage (%) of the contract value or project value;

d) For multi-period audit contracts with a fixed fee for each period.

3. Based on the provisions of Clauses 1 and 2 of this Article, the auditing firm and the client shall agree on the fee rates for other types of services.

Chapter IV

STATE MANAGEMENT OF INDEPENDENT AUDITING ACTIVITIES

Article 33. Contents of state management of independent auditing activities

1. Developing and directing the implementation of strategies, planning, and plans for the development of independent auditing professions in Vietnam.

2. Issuing, disseminating, directing, and organizing the implementation of auditing standards and guidelines for implementing auditing standards and professional methods of auditing.

3. Issuing and organizing the implementation of training and upgrading regulations for auditing practices and annual knowledge updates; prescribing examination formats and issuing auditor certificates; establishing a National Examination Board, organizing examinations, and issuing auditor certificates.

4. Uniformly managing the list of auditors and auditing firms engaged in independent auditing nationwide. Every two years, the Ministry of Finance publicly announces the list of auditors and auditing firms registered for practice.

5. Implementing compliance checks with laws on independent auditing, auditing standards, and related regulations in auditing firms.

6. Suspending the enforcement and requiring amendments to regulations and decisions of auditing firms that contravene laws on the organization of auditing firms and auditing practices.

7. Implementing measures to support the development of independent auditing professions.

8. Managing international cooperation activities in auditing.

9. Resolving complaints, accusations, and handling violations of laws on independent auditing.

Article 34. Responsibilities of state management agencies for independent auditing

1. The Government shall uniformly manage state affairs concerning independent auditing activities.

2. The Ministry of Finance shall be responsible to the Government for performing its functions in managing state affairs concerning independent auditing activities.

3. Ministries and agencies equivalent to ministries within their respective tasks and powers shall be responsible for managing state affairs concerning independent auditing activities and auditing firms in the sectors they are assigned to oversee.

4. Provincial People's Committees and municipal people's committees directly under the central government within their respective tasks and powers shall be responsible for managing state affairs concerning independent auditing activities and auditing firms in their localities.

Article 35. Resolution of disputes or conflicts

1. When there is a dispute or conflict regarding the audit results related to the audit contract, the parties shall proceed with procedures to resolve the dispute or conflict according to the provisions of the law.

2. During the resolution of disputes over audit results, the financial authority shall be responsible for participating in evaluating the compliance with auditing principles, auditing standards, and professional methods of auditing of the auditing firm and auditor at the request of relevant legal authorities.

Article 36. Revocation of Investment License, Business Registration Certificate, or Auditor Certificate

1. The Ministry of Finance and competent authorities have the right to request the Ministry of Planning and Investment or the business registration agency to revoke the Investment License, Business Registration Certificate for auditing services, or not to accept the application for practicing as an auditor when an auditing firm violates Articles 23, 24, 25, 26, 27, 28, and 29 of this Decree.

2. The Ministry of Finance has the right to revoke the Auditor Certificate of an auditor who practices in violation of Articles 17, 18, and 19 of this Decree.

Chapter V

REWARD AND VIOLATION HANDLING

Article 37. Awards

Organizations and individuals with outstanding achievements in independent auditing activities shall be rewarded in accordance with the provisions of the law.

Article 38. Handling Violations

Organizations and individuals who commit violations of the provisions of this Decree shall be subject to disciplinary action, administrative penalties, or criminal prosecution depending on the nature and severity of the violation; if damage is caused, they must compensate according to the provisions of the law.

Chapter VI

IMPLEMENTING PROVISIONS

Article 39. This Decree takes effect fifteen days after its publication in the Official Gazette, replacing Government Decree No. 07/CP dated January 29, 1994, promulgating the "Regulations on Independent Auditing in the National Economy." The Minister of Finance is responsible for guiding the implementation of this Decree.

Article 40. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of provincial and centrally governed city People's Committees are responsible for implementing this Decree.

Article 41. All previous regulations that conflict with this Decree are hereby abolished.