Circular No. 14/1998/TT-BTC guides the financial management and business accounting regime for state-owned enterprises engaged in independent auditing.

 CIRCULAR

GUIDELINES ON THE FINANCIAL MANAGEMENT AND ACCOUNTING OF STATE ENTERPRISES ENGAGED IN INDEPENDENT AUDITING ISSUED BY THE MINISTRY OF FINANCE UNDER DECREE NO. 14/1998/TT-BTC DATED FEBRUARY 5, 1998

Pursuant to Decree No. 59/CP dated October 3, 1996 of the Government on the financial management and accounting for state enterprises, the Ministry of Finance issues guidelines on the financial management for state enterprises engaged in independent auditing (referred to as auditing enterprises) as follows:

I. GENERAL PROVISIONS:

1. These Guidelines apply to state enterprises engaged in business activities in the field of auditing, financial and accounting consulting, and other service activities according to their articles of operation.

2. Auditing enterprises are granted capital, land, and other resources by the State; they are responsible for using such resources efficiently, preserving and developing the assigned capital; they have civil rights and obligations; and they bear responsibility for their own business operations.

3. Auditing enterprises (including their branches) are subject to inspection and supervision by the finance authority as the State administrative body and representative of the State's ownership over capital and assets at the enterprise pursuant to the Government's authorization.

II. SPECIFIC PROVISIONS:

PART I. MANAGEMENT AND USE OF CAPITAL AND ASSETS:

1. When established, state enterprises engaged in auditing are granted initial charter capital in accordance with the statutory capital level of the auditing industry as stipulated in Decree No. 50/CP dated August 28, 1996 of the Government. During the course of business, when necessary, the State may consider additional investment in capital for the enterprise to fulfill supplementary tasks assigned by the State.

2. The State implements the transfer of state-owned capital to auditing enterprises. The transfer of capital to enterprises shall be carried out in accordance with the Law on State Enterprises and other current laws.

3. Auditing enterprises have the right to use their capital and funds for business purposes based on the principle of "efficiency - preservation and development of capital." In cases where capital and funds are used for purposes other than those specified, the principle of "repayment" must be followed.

4. Capital Management:

4.1. Auditing enterprises have the right to use their capital, assets, and land use rights under their management to invest outside the enterprise. However, the use of "land use rights" for external investment must comply with the provisions of the Land Law.

External investments by auditing enterprises must comply with legal regulations, not alter the form of ownership of the enterprise, and ensure the principles of efficiency, preservation, and development of capital, increased income, and no impact on the main business tasks assigned by the State.

4.2. Forms of external investment by auditing enterprises include:

- Purchasing government bonds, bonds, promissory notes, and stocks;

- Joint ventures and shareholding contributions with other enterprises.

5. Auditing enterprises have the right to lease, mortgage, or sell assets under their management for re-investment, technological renewal, following the principles of efficiency, preservation, and development of capital, and ensuring compliance with legal procedures.

6. Auditing enterprises must strictly adhere to the system of depreciation expense accrual and utilization of fixed assets. The entire amount of depreciation expenses of fixed assets belonging to the State shall be retained by the enterprise for re-investment, replacement, and modernization of fixed assets and used for business needs as prescribed by the State.

7. Auditing enterprises have the right to raise capital through borrowing, receiving equity contributions, and other forms as prescribed by law. The raising of capital must comply with current legal regulations (without altering the form of State ownership of auditing enterprises).

8. Asset Management:

8.1. Auditing enterprises shall conduct asset revaluation in the following situations:

- Inventory and revaluation of assets as decided by the State;

- Using assets for joint ventures or shareholding contributions (in both cases: when contributing assets and when receiving assets back);

- Implementing shareholding diversification and diversifying ownership forms;

- Adjusting prices to ensure the actual value of the enterprise.

8.2. The inventory and revaluation of assets must comply with the State's regulations. Any increases or decreases in value due to asset revaluation shall be recorded as increases or decreases in capital after approval by the finance authority.

9. Auditing enterprises may proactively liquidate assets that have lost quality, are technologically obsolete, are no longer needed, cannot be sold, are irreparably damaged, or have exceeded their useful life.

When liquidating assets, the enterprise must establish a Liquidation Committee, and if selling liquidated assets, it must organize public auctions in accordance with the law.

Within ten days after the liquidation of assets, the enterprise must report to the capital and asset management authority at the enterprise and the authority that approved the establishment of the enterprise.

Any difference between the proceeds from the sale of liquidated assets and the remaining value of the liquidated assets and the costs of selling and liquidating (if any) shall be recorded as other income in the enterprise's business results.

10. Auditing enterprises are responsible for preserving the State-assigned capital in accordance with the following regulations:

- Adhering to the State's regulations on the management and use of capital and assets.

- Purchasing insurance for assets as prescribed by the State.

- Recording the following reserve items as business expenses:

+ Reserve for reduction in inventory value: this is the anticipated reduction in the value of inventory materials and goods expected to occur in the next business period.

+ Reserve for reduction in receivables: this is the anticipated loss in value of receivables expected to occur in the next business period due to debtors' inability to pay.

+ Reserve for reduction in securities investment value in financial activities.

The establishment and use of these reserves shall be in accordance with the State's regulations.

SECTION 2. REVENUE - BUSINESS EXPENSES:

1. Revenue from business activities of the Audit Firm includes all amounts received from the company's offices, branches, and representative offices, including revenue from business operations and other activities, specifically:

A. BUSINESS OPERATIONS:

1. Revenue from audit activities:

* Financial statement audit;

* Final settlement audit for construction projects;

* Project audit;

* Audit to determine asset value for shareholding, merger, dissolution; joint venture capital contribution, etc.;

* Audit according to specific customer requirements.

2. Revenue from consulting services:

* Financial management, accounting, tax law consulting;

* Consulting according to specific customer requirements.

3. Revenue from other business activities:

* Software program installation;

* Sale of materials;

* Training;

* Revenue from joint business contract activities.

B. OTHER ACTIVITIES:

1. Revenue and income from financial activities:

1.1. Revenue from financial activities: rental income from assets (houses, tools, cars, etc.).

1.2. Financial activity income:

* Interest on deposits.

* Interest on loans.

* Income from trading activities: bonds - bills - stocks, etc.

* Income from joint ventures, shareholding, etc.

2. Revenue from extraordinary activities includes income from infrequent activities such as:

* Income from selling tools and equipment that have been fully depreciated but are damaged or not needed.

* Amounts receivable that do not need to be paid due to creditor reasons.

* Income from asset liquidation transfer.

* Previously written-off bad debts now recovered.

* Refund of bad debt provisions previously set aside but not fully utilized.

* Other extraordinary income.

All revenue generated during the period by the independent Audit Firm must be reflected on valid invoices and receipts and recorded fully in accounting books according to state regulations.

The enterprise is responsible for determining and clearly reflecting taxable revenue for each type of activity according to current tax laws, decrees, and guiding circulars.

Revenue and income of enterprises not recorded in the books must be fully remitted to the State Budget and penalized according to current regulations.

2. The fee level for audit and consulting activities depends on the agreement between both parties (the Audit Firm and the client). This agreement must be based on:

- The volume and complexity of the audit work required;

- Domestic and international market prices for auditing (international project audit contracts);

- Current state regulations related to audit work recorded in the contract;

- Ensuring full costs and an appropriate profit margin.

3. Work-in-progress of the Audit Firm consists of audit and consulting contracts still in progress at the end of the calendar year (financial reporting year), showing:

- Service provision costs incurred but not yet fully settled.

- Audit and consulting fees collected insufficiently or not determined due to lack of final settlement contract documentation.

- Advance payments from customers for work already contracted in the agreement.

4. Expenses of the Audit Firm include expenses for audit, consulting, financial activities, other activities, and common expenses for all business activities.

The directors of Audit Firms must prepare annual expense budgets as a basis for business operation management and expense control.

EXPENSES FOR EACH SPECIFIC ACTIVITY:

A. BUSINESS OPERATIONS:

1. Expenses for audit activities:

* Payment of wages to workers not under the firm's management such as: Collaborators, specialized technical engineers, experts.

* Translation, printing, and report preparation costs.

* Professional liability insurance (or risk reserve fund since professional liability insurance does not exist in Vietnam currently).

2. Expenses for consulting activities:

* Payment of wages to workers not under the firm's management.

* Professional liability insurance (or risk reserve fund since professional liability insurance does not exist in Vietnam currently).

3. Expenses for other business activities:

3.1. Expenses for software program installation.

3.2. Expenses for material sales service:

* Cost of goods sold;

* Sales expenses: Packaging and marketing;

* Reserve for inventory write-down.

3.3. Expenses for training services:

* Preparation material costs;

* Printing costs for teaching materials;

* Hall rental costs;

* Instructor payment: Wages, food, accommodation, and travel expenses;

* Beverage costs for classes;

* Office supply costs for class support;

* Printing and certification procedures for classes;

* Opening and closing ceremony costs for classes.

3.4. Expenses for joint business contract activities.

B. OTHER ACTIVITIES:

1. Expenses for financial activities (rental, financial investment):

* Depreciation of rented properties;

* Repair costs for rented assets;

* Maintenance costs.

2. Expenses for extraordinary activities:

* Costs of fixed asset disposal (including residual value when disposing and transferring fixed assets);

* Actual loss value of assets after deducting compensation from the person at fault and insurance organization, salvage value recovered, and amounts compensated by the reserve fund;

* Costs for recovering written-off debts;

* Other extraordinary costs.

COMMON EXPENSES FOR ALL ACTIVITIES:

(In addition to the specific expenses above)

* Wages paid to employees managed by the enterprise;

* Social insurance, health insurance, trade union fees according to salary fund;

* Depreciation of fixed assets of the enterprise (according to registered rate with the state);

* Tools, office supplies;

* Stationery for enterprise staff;

* Press, professional books;

* Costs for seminars, vocational training;

* Costs for enterprise promotional advertising;

* Repair costs for assets;

* Insurance costs for enterprise assets;

* Uniform costs (as prescribed by the state);

* Quarterly and annual enterprise review and summary costs;

* Foreign trips:

- Overseas tours and surveys;

- Overseas training.

* Interest payments on bank loans, other borrowings, including post-construction investment loans.

* Recruitment costs for employees, promotion, training staff to improve and enhance knowledge;

* Travel expenses: renting vehicles, accommodation, lodging, etc.;

* Marketing and hospitality expenses. The level of expenditure is specified according to the specific characteristics as provided in Decree 59/CP;

* Renting office space (if applicable);

* Severance pay for workers in accordance with Resolution 198/CP dated December 31, 1994;

* Provision for bad debts (if applicable);

* Annual fees of relevant associations related to business activities of the enterprise;

* Outsourcing expenses: electricity, water, telephone, etc.;

* Various taxes and fees (with tax-like nature) paid to the state budget such as:

- Land usage fee;

- Business registration tax;

- Land rental fee;

* Audit expenses of the enterprise;

* Other expenses (not listed above);

The aforementioned expenses shall be recorded based on actual expenditures approved by the enterprise's General Director who is responsible for his decision. Expense vouchers must comply with the legality and rationality requirements set forth by the State. For expenses not in accordance with regulations, the person making the decision shall bear responsibility for compensation.

Regarding wage expenses: The enterprise bases its labor quota on Circulars No. 13/LDTBXH-TT and No. 14/LDTBXH-TT dated April 10, 1997 issued by the Ministry of Labor, Invalids and Social Affairs; On the basis of the registered labor quota and the wage system prescribed by the State, the enterprise establishes the unit price of wages to submit for approval by the competent authority.

The establishment and utilization of the wage fund must be based on the approved unit price of wages and the business results achieved during the period.

Annually, the enterprise must settle the wage fund with the agency that established the enterprise, the State Capital and Asset Management Agency at the enterprise, and the tax authority.

SECTION 3. PROFIT AND ESTABLISHMENT OF FUNDS

1. The profit of the audit enterprise is the total profit of branches consolidated and re-determined by the parent company - this is the difference between total revenue and total (Expenses + Income Tax) of each direct unit:

Profit of audit enterprise = Total revenue - (Total expenses + Income tax)

Profit is determined separately for each activity.

2. The total annual profit of the audit enterprise is distributed in the following order:

2.1. Pay corporate income tax as prescribed by law.

2.2. Pay money from the use of state budget capital;

2.3. Pay fines such as:

- Penalties for violations of financial discipline paid to the state budget;

- Administrative penalties;

- Late payment penalties (after deducting collected penalties);

- Legitimate expenses not deducted when determining the corporate income tax payable.

2.4. Deduct losses not deductible before tax;

2.5. After deducting the four items above, the enterprise may establish funds as follows:

- Development Investment Fund: at least 50%, with no maximum limit;

- Financial Reserve Fund: 10% - balance not exceeding 25% of the charter capital;

- Unemployment Allowance Reserve Fund: 5% - balance not exceeding six months' actual salary;

- The remaining profit after establishing the three funds above, the enterprise may establish two welfare and reward funds as follows:

+ Maximum not exceeding three months' actual salary - if the profit rate on capital for the fiscal year is not lower than the previous year;

+ Maximum not exceeding two months' actual salary - if the profit rate on capital for the fiscal year is lower than the previous year.

After distributing into the two welfare and reward funds, if there is any remaining, it will be subject to additional corporate income tax, and after paying additional corporate income tax, if there is any remaining, it will be transferred entirely to the development investment fund.

3. The audit enterprise may use the following centralized funds:

3.1. Development Investment Fund:

The Development Investment Fund is managed centrally by the audit enterprise to be used for the enterprise's investment needs in accordance with the State's regulations.

3.2. Financial Reserve Fund:

Used to offset losses and damages to assets that the enterprise must bear during business operations. And to contribute to forming the financial reserve fund of the parent company (if it is a subsidiary).

3.3. Unemployment Allowance Reserve Fund:

- Used for:

* Training workers due to changes in structure or technology;

* Enhancing the professional skills of workers;

* Providing unemployment benefits to workers who have been continuously employed in the enterprise but now lose their jobs in accordance with Decree No. 72/CP dated October 31, 1995.

3.4. Reward Fund, used for:

- Year-end or regular bonuses for cadres and workers in the enterprise. The bonus amount is decided by the General Director after consulting the enterprise trade union;

- Special bonuses for individuals or groups within the enterprise who have innovative ideas improving techniques that bring about business efficiency. The bonus amount is decided by the General Director;

- Bonuses for individuals and units outside the enterprise that have contractual economic relations and have fulfilled the conditions of the contract, contributing significantly to the enterprise's business activities. The bonus amount is decided by the General Director.

3.5. Welfare Fund, used for:

- Investing in building or repairing welfare facilities of the enterprise;

- Spending on public welfare activities for the collective of workers and social welfare;

- Providing assistance for difficult situations including retirement due to health reasons... The spending amount is decided by the General Director after consulting the enterprise trade union.

PART 4. OBLIGATIONS TOWARDS THE STATE BUDGET

The Audit Firm must fulfill its obligations towards the State Budget in accordance with the current tax laws.

PART 5. ACCOUNTING SYSTEMS, STATISTICS AND AUDIT

- The Director is responsible for preparing the final accounts of the firm including all affiliated branches; publicly disclosing the financial situation of the firm in accordance with the guidelines of the Ministry of Finance and bearing legal responsibility for the disclosed figures.

- Financial authorities shall perform their duty to inspect and audit the contents published by the firm, including all affiliated branches.

PART 6. FINANCIAL PLANNING WORK

The Director of the Audit Firm shall develop an annual financial plan consistent with the business plan and register it with the Ministry of Finance. Quarterly and annually, they shall report to the Ministry of Finance on the implementation of the business plan and financial plan according to the prescribed forms.

III. IMPLEMENTATION PROVISIONS:

1. This financial mechanism shall take effect fifteen days from the date of signature.

2. In addition to the above provisions, Audit Firms must fully comply with the current financial regulations of the State.

3. Based on this financial mechanism, each specific Audit Firm shall detail it appropriately for the activities of the firm.

Any difficulties encountered during implementation should be promptly reported to the Ministry of Finance for appropriate handling.