Decision No. 28/2003/QD-BTC On the issuance and promulgation of five Vietnamese Auditing Standards (Batch 4)

Pursuant to …;

Regarding the issuance and publication of five Vietnamese Auditing Standards (Batch 4)

 

THE MINISTER OF FINANCE

Pursuant to Decree No. 86/2002/NĐ-CP dated November 5, 2002 of the Government stipulating the functions, tasks, powers, and organizational structure of Ministries and ministerial-level agencies;

Pursuant to Decree No. 178/CP dated October 28, 1994 of the Government on the Tasks, Authorities, and Organizational Structure of the Ministry of Finance;

Pursuant to Decree No. 07/CP dated January 29, 1994 of the Government promulgating the Independent Audit Regulation in the National Economy;

To meet the requirements for reforming economic and financial management mechanisms, improving the quality of independent auditing in the national economy; inspecting and supervising the quality of independent auditing activities, promoting the healthiness of financial information in the national economy;

At the proposal of the Director of the Accounting System Department, the Head of the Office of the Ministry of Finance,

Pursuant to …;

Article 1: Issuing five (5) Vietnamese Auditing Standards (Batch 4) with the following numbers and names:

1. Standard No. 220 - Quality Control of Auditing Activities;

2. Standard No. 320 - Materiality in Auditing;

3. Standard No. 501 - Additional Audit Evidence for Specific Items and Events;

4. Standard No. 560 - Subsequent Events After the Balance Sheet Date for Financial Statements;

5. Standard No. 600 - Utilization of Other Auditors' Work.

Article 2: The Vietnamese Auditing Standards issued together with this Decision shall apply to independent auditing of financial statements. Services related to auditing other financial information and services provided by accounting firms shall be applied according to specific provisions of each standard.

Article 3: This Decision shall take effect from April 1, 2003.

Article 4: Auditors and accounting firms legally operating in Vietnam are responsible for implementing the five Vietnamese Auditing Standards issued under this Decision in their operations.

The Director of the Accounting System Department, the Head of the Office of the Ministry of Finance, and the Heads of relevant units under and affiliated with the Ministry of Finance are responsible for guiding, inspecting, and enforcing this Decision.

SYSTEM OF VIETNAMESE AUDITING STANDARDS VIETNAMESE AUDITING STANDARD NO. 220

QUALITY CONTROL OF AUDITING ACTIVITIES
(Issued pursuant to Decision No. 28/2003/QD-BTC dated March 14, 2003 of the Minister of Finance
dated March 14, 2003 of the Minister of Finance)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe basic principles, procedures, and guidance on the application of these principles and procedures in the control of the quality of auditing activities in the following aspects:

a. Policies and procedures of the accounting firm related to auditing activities;

b. Procedures related to the work assigned to auditors and assistant auditors in a specific audit engagement.

02. Auditors and accounting firms must implement quality control policies and procedures for all auditing activities of the accounting firm and for each specific audit engagement.

03. This standard applies to audits of financial statements and can also be applied to audits of other financial information and related services provided by accounting firms.

Auditors and accounting firms must comply with the provisions of this standard during the audit process and provision of related services.

The audited entity (client) and users of the audit results must have necessary knowledge about the principles and procedures prescribed in this standard to fulfill their responsibilities and to coordinate with auditors and accounting firms to resolve relationships during the audit process.

Terms in this standard are understood as follows:

04Accounting Firm: Is a business established and operated in accordance with the laws on establishment and operation of businesses in the field of providing independent auditing services.

05. Managing Director (or head) of the accounting firmIs the highest legal representative of the accounting firm and bears ultimate responsibility for auditing work.

06. Professional staff: Includes all levels of leadership, auditors, assistant auditors, and consulting experts of the accounting firm.

07. Auditor: Is a person holding an auditor certificate issued by the Ministry of Finance, registered to practice at an independent accounting firm, participating in the audit process, signing the audit report, and being accountable before the law and the Managing Director of the accounting firm for the audit.

08. Assistant AuditorParticipates in the audit process but does not sign the audit report.

09. Quality of auditing activities: Is the degree of satisfaction of users of audit results regarding the objectivity and reliability of the auditor's opinion; and the satisfaction of the audited entity regarding the contributions of the auditor aimed at enhancing business efficiency within a predetermined period at reasonable fees.

CONTENT OF THE STANDARD

Accounting Firm

10. The accounting firm must establish and implement quality control policies and procedures to ensure that all audits are conducted in compliance with Vietnamese Auditing Standards or internationally accepted auditing standards recognized by Vietnam, thereby continuously improving the quality of audits.

11. The content, schedule, and scope of quality control policies and procedures of an accounting firm depend on factors such as the size, nature of operations, area of operation, organizational structure, and cost-benefit analysis. Quality control policies and procedures of each accounting firm may differ but must ensure compliance with the quality control provisions for auditing activities in this standard.

Examples of quality control policies and procedures specified in Appendix No. 01.

12. To achieve the goal of controlling the quality of auditing activities, accounting firms typically adopt the following policies in combination:

a. Compliance with professional ethics principles

Professional staff of the accounting firm must comply with auditing professional ethics principles, including independence, integrity, objectivity, professional competence, due care, confidentiality, professional conduct, and compliance with professional standards.

b. Skills and professional competence

Professional staff of the accounting firm must possess skills and professional competence, and must regularly maintain, update, and enhance their knowledge to complete assigned tasks.

c. Assignment

The audit work must be assigned to professional staff who have been trained and possess the necessary skills and expertise to meet practical requirements.

d. Guidance and supervision

Audit work must be adequately guided and supervised at all levels of staff to ensure that the audit work has been carried out in accordance with auditing standards and relevant regulations.

e. Seeking advice

When necessary, auditors and auditing firms must seek advisory opinions from experts within or outside the firm.

f. Maintaining and accepting clients

During the process of maintaining existing clients and evaluating potential clients, the auditing firm must consider its independence, service capacity, and the integrity of the client's management board.

g. Review

The auditing firm must regularly monitor and review the adequacy and effectiveness of the implementation of quality control policies and procedures for audit activities within the company.

13. Quality control policies and procedures for audit activities of the auditing firm must be disseminated to all staff members of the company to help them understand and fully implement these policies and procedures.

Each audit engagement

14. Auditors and assistant auditors must appropriately apply the firm's quality control policies and procedures to each audit engagement.

15. Auditors are responsible for reviewing the professional competence of assistant auditors performing assigned tasks to guide, supervise, and check their work accordingly.

16. When assigning work to assistant auditors, it must be ensured that the work is given to individuals with the necessary professional competence.

for use

17. Auditors must instruct assistant auditors on matters related to the audit such as: their responsibilities for the assigned work, the objectives of the procedures they must perform, the characteristics and nature of the client's production and business operations, and accounting or auditing issues that may affect the content, schedule, and scope of the audit procedures they are conducting.

18. The overall audit plan and audit program are important tools to guide auditors and assistant auditors in performing audit procedures.

Monitoring and Supervision

19. Supervision is closely linked to guidance and review and may include both elements.

20. Individuals assigned to oversee the quality of the audit must perform the following functions:

a. Monitor the audit implementation process to determine whether:

- Auditors and assistant auditors have the necessary skills and professional competence to perform the assigned work;

- Assistant auditors understand the audit guidelines;

- The audit work is being conducted according to the overall audit plan and audit program;

b. Identify and address significant accounting and auditing issues arising during the audit to adjust the overall audit plan and audit program accordingly;

c. Handle differing professional opinions among auditors and assistant auditors involved in the audit and consider whether to seek the opinion of an external advisor;

21. Individuals assigned to oversee the quality of the audit must perform the following responsibilities:

a. If violations of auditing professional ethics or indications of collusion with the client to misrepresent financial statements by auditors or assistant auditors are discovered, the supervisor must report to the authority for handling;

b. If auditors or assistant auditors are found not to meet the necessary skills and professional competence required for the audit, the supervisor must propose to the authority to replace the auditor or assistant auditor to ensure the quality of the audit according to the overall audit plan and audit program.

Inspection

22. All work performed by auditors and assistant auditors must be reviewed by individuals with equivalent or higher professional competence than the auditors to determine:

a. Whether the work has been carried out according to the audit plan and program;

b. Whether the work performed and results obtained have been fully recorded in the audit file;

c. Whether all significant issues have been resolved or reflected in the audit conclusion;

d. Whether the objectives of the audit procedures have been achieved;

e. Whether the conclusions drawn during the audit are consistent with the results of the work performed and support the audit opinion.

23. Auditors and auditing firms must regularly review the following activities:

a. Implementation of the overall audit plan and audit program;

b. Evaluation of potential risks and control risks, including the evaluation of the results of control tests and any modifications (if any) to the overall audit plan and audit program;

c. Recording of audit evidence obtained in the audit file, including the opinions of external advisors and conclusions drawn from performing basic tests;

d. Financial statements, proposed adjustments to financial statements, and draft audit reports.

24. During the quality review of an audit, especially large and complex audit engagements, it may be necessary to require professional staff outside the audit team to conduct certain additional procedures before issuing the audit report.

25. In cases where there are differing opinions on the quality of an audit, a group discussion within the audit team should be held to reach a consensus on the assessment and learn from the experience. If the audit team cannot reach an agreement, the matter should be reported to the Director for resolution or referred to a meeting of key members of the company.

ANNEX NO. 01

EXAMPLES OF QUALITY CONTROL POLICIES AND PROCEDURES

AUDIT ACTIVITIES OF THE AUDITING FIRM

A - COMPLIANCE WITH PROFESSIONAL ETHICS PRINCIPLES

Policy

All professional staff members of the auditing company must comply with the auditing profession's ethical principles, including independence, integrity, objectivity, professional competence, due care, confidentiality, professional conduct, and adherence to professional standards.

Procedures

1. Assign one person or a group of people to be responsible for guiding and resolving issues related to independence, integrity, objectivity, and confidentiality.

a. Identify cases that require written explanations regarding independence, integrity, objectivity, and confidentiality;

b. When necessary, seek advice from experts or authorized persons.

2. Disseminate policies and procedures related to independence, integrity, objectivity, professional competence, due care, confidentiality, professional conduct, and professional standards to all professional staff members within the company.

a. Announce these policies and procedures and require staff members to be familiar with them;

b. Emphasize independence and professional conduct during training programs, supervision, and audit review processes;

c. Regularly and promptly notify the list of clients requiring independence.

- The list of clients requiring independence includes branches, parent companies, and joint ventures;

- Notify all staff members about this list so they can determine their independence;

- Establish procedures to notify changes in this list.

3. Monitor and inspect the implementation of policies and procedures related to compliance with ethical principles: independence, integrity, objectivity, professional competence, due care, confidentiality, professional conduct, and adherence to professional standards.

a. Annually, require staff members to submit a report stating:

- They are familiar with the company's policies and procedures;

- During the current and financial year being audited, they have not engaged in any prohibited investments;

- No relationships or transactions prohibited by company policy have arisen.

b. Assign one person or a group of people with sufficient authority to verify the completeness of the records on compliance with independence and resolve exceptional cases;

c. Periodically review the relationship between the company and its clients concerning issues that may affect the company's auditing independence.

B. SKILLS AND PROFESSIONAL COMPETENCE

Policy

Professional staff of the accounting firm must possess skills and professional competence, and must regularly maintain, update, and enhance their knowledge to complete assigned tasks.

Procedures

Recruitment:

The auditing company must maintain a recruitment process for professional staff by planning personnel needs, setting recruitment targets, and specifying requirements for the qualifications and capabilities of those conducting recruitment functions.

a. Plan personnel needs for various positions and set recruitment targets based on the number of existing clients, projected growth, and potential reductions in staff.

b. To achieve recruitment targets, establish a recruitment program consisting of the following elements:

- Identifying potential candidates;

- Methods of contacting potential candidates;

- Methods of obtaining specific information about each potential candidate;

- Methods of attracting potential candidates and informing them about the company;

- Methods of evaluating and selecting potential candidates to meet the required number of applicants.

c. Inform those involved in recruitment about the company's personnel needs and recruitment targets.

d. Assign an authorized person to make hiring decisions.

e. Evaluate the effectiveness of the recruitment program:

- Periodically assess the recruitment program to ensure compliance with the company's policies and procedures for recruiting qualified personnel;

- Periodically review recruitment results to determine if the company has met its recruitment targets and needs.

2. Establish criteria and guidelines for evaluating prospective employees at each position.

a. Determine the characteristics required of prospective employees; For example: Intelligence, integrity, honesty, dynamism, and professional expertise.

b. Determine achievements and experience required of new graduates or experienced candidates; For example:

- Basic education;

- Personal achievements;

- Work experience;

- Personal interests.

c. Develop guidelines for recruiting employees in special cases:

- Recruiting relatives of company staff, closely related individuals, or relatives of clients;

- Re-recruiting former employees;

- Recruiting employees from clients;

- Recruiting employees from competing companies.

d. Collect basic information about the qualifications of prospective employees through appropriate means, such as:

- Curriculum vitae;

- Application forms;

- Academic credentials;

- Personal references;

- References from previous employers;

- Interviews...

e. Assess the qualifications of newly hired employees, including those hired outside the regular recruitment process (for example, those joining the company as supervisors; recruited through mergers or acquisitions, joint ventures) to determine if they meet the company's requirements.

3. Inform prospective employees and new hires about the company's policies and procedures related to them.

a. Use informational materials or other methods to introduce the company to prospective employees and new hires;

b. Prepare documentation outlining the company's policies and procedures to distribute to all staff members;

c. Implement orientation programs for new hires.

Professional Training:

4. Establish guidelines and requirements for ongoing professional development and inform all staff members of the auditing company.

a. Assign one person or a group of people to be responsible for developing the careers of staff members;

b. The company's training program must be reviewed and approved by professionals. The program must outline training objectives, required qualifications, and experience.

c. Provide guidance on the development of the company and career paths for new employees.

Prepare materials on the company's development direction and career paths to inform new employees about their job responsibilities and career opportunities.

Assign the implementation of orientation sessions to disseminate job responsibilities and company policies.

d. Establish training programs to update professional knowledge for all staff at every level within the company:

- When developing training programs, consider mandatory regulations and non-mandatory guidelines set forth by laws and professional organizations.

- Encourage participation in external vocational training programs, including self-study formats.

- Encourage involvement in professional organizations and determine whether the company will cover the full or partial costs.

- Encourage staff to participate in specialized committees of professional organizations; write articles, books, and engage in other professional activities.

e. Regularly review professional training programs and maintain records of the overall training situation of the entire company and each individual.

- Periodically examine each employee's participation in training programs to determine compliance with company requirements.

- Periodically review evaluation reports and other documentation regarding advanced training programs to assess their effectiveness in achieving the company's goals. Consider the need for new training programs, modifications to existing ones, or elimination of ineffective programs.

5. Timely provide all staff with information on technical standards and company policies and procedures. Encourage employees to participate in activities to enhance their professional skills.

a. Timely provide all staff with professional materials, including changes, such as:

- National and international professional literature on accounting and auditing;

- Legal texts currently in force in specific areas for employees responsible for those areas;

- Materials on the company's policies and procedures related to technical and professional matters.

b. For internally developed training programs, prepare materials and select instructors:

- Training programs must clearly state objectives, required qualifications, and experience of participants;

- Instructors must be well-versed in the program content, methods, and pedagogy;

- Organize evaluations by trainees of the course content, instructor performance, and learning conditions;

- The program must include assessments by instructors of the course content, teaching methods, and trainee performance;

- The training program must be updated to reflect developments, innovations, and relevant evaluation reports;

- Maintain and facilitate access to technical professional materials related to company regulations.

6. To train specialized professionals in narrow fields, the company must:

a. Organize specialized training programs such as banking audit, computer audit, sampling methods, etc.;

b. Encourage staff to participate in external training programs and seminars to improve their expertise;

c. Encourage staff to join professional organizations related to narrow fields;

d. Provide materials related to narrow fields.

7. The auditing firm must assign personnel to oversee all auditors in the company to complete annual knowledge update training programs conducted by the Ministry of Finance or authorized organizations.

Career Advancement Opportunities:

8. The auditing firm must establish standards for each level of staff within the company:

a. Define responsibilities and qualifications for each level of staff, including:

- Job titles and responsibilities;

- Qualification and experience (or years of service) standards for each position.

b. Determine qualification criteria as a basis for evaluating work results and actual working capabilities at each level; Examples:

- Professional knowledge;

- Analytical and evaluative abilities;

- Communication skills;

- Training skills;

- Leadership methods;

- Client relationships;

- Personal attitude and professional conduct (such as personality traits, intelligence levels, judgment ability, and dynamism);

- Reviewing skills.

c. Develop personal handbooks or other means to disseminate company promotion procedures and policies to all staff.

9. Conduct performance evaluations for all staff and inform them of the results.

a. Collect information and evaluate work performance:

- Identify responsibilities and evaluation requirements at each level, specify who conducts the evaluation and when results are provided;

- Guidelines for evaluation targets;

- Use standardized forms for self-assessment by staff, followed by higher-level verification;

- Re-evaluate previous assessments of each staff member;

- Employee evaluations must be conducted by multiple individuals;

- Ensure that evaluation tasks are completed on schedule;

- Maintain evaluation records in individual files;

- For evaluations of managerial staff, seek feedback from subordinates to determine if they have the necessary qualifications to fulfill their responsibilities.

b. Regularly inform all staff about individual progress and career prospects, including:

- Work performance results;

- Individual and career prospects;

- Promotion opportunities for each person.

c. Regularly promote staff based on evaluation results.

C- ASSIGNMENTS

Policy

The audit work must be assigned to professional staff who have been trained and possess the necessary skills and expertise to meet practical requirements.

Procedures

1. Assign tasks to employees:

a. Plan staffing needs for each department within the company;

b. Determine the staff requirements for specific audit contracts;

c. Allocate staff and time for each audit contract;

d. When assigning tasks to staff, consider the following factors:

- The scale and complexity of the audit;

- The number of existing staff;

- The required expertise and special skills;

- The work schedule;

- The continuity and rotation of staff on a regular basis;

- The prospects for on-the-job training.

2. Assign tasks to one person or a group of people for a specific audit.

a. The person responsible for assignment must consider the following factors:

- Staff and time requirements of the audit contract;

- Professional qualifications, experience, status, basic education, and special abilities of the staff;

- The plan of participation of the person assigned supervisory responsibility;

- The expected time of each individual;

- Situations affecting independence; For example: Assigning tasks to professional staff with economic relations or family ties to the leadership of the audited entity.

b. When assigning tasks, it is necessary to consider continuity and rotation to enable staff to perform their duties effectively and also take into account the capabilities, qualifications, and experience of other staff members.

3. The time and personnel plan for an audit must be approved before implementation.

D- GUIDANCE AND SUPERVISION

Policy

Audit work must be adequately guided and supervised at all levels of staff to ensure that the audit work has been carried out in accordance with auditing standards and relevant regulations.

Procedures

1. Procedures for planning audits.

a. Assignment of responsibility for audit planning;

b. Review information obtained from previous audits and update new information;

c. Develop overall audit plans and audit programs.

2. Procedures to maintain quality standards:

a. Conduct supervision at all levels; review the training process, capabilities, and experience of assigned staff;

b. Provide guidance on the format and content of working papers;

c. Use standard templates, checklists, and questionnaires to support audit work;

d. Establish procedures for resolving differing professional opinions.

3. Implement on-the-job training during the audit practice.

a. Regularly discuss with audit assistants about the relationship between their work and the entire audit and arrange for audit assistants to participate in various audit areas;

b. Incorporate "employee management skills" into the company's training program;

c. Encourage employees to participate in the "training and development successor program";

d. Check assigned work to determine whether employees have mastered the relevant professional knowledge and auditing experience in each field.

e. Seeking advice

Policy

When necessary, auditors and auditing firms must seek advisory opinions from experts within or outside the firm.

Procedures

1. Identify specific areas and situations that require consulting advice or encourage employees to seek advice from experts or authorized persons.

a. Inform staff about the company's policy and procedures for seeking consulting advice;

b. Specific areas or complex professional situations requiring consultation, such as:

- Applying newly issued regulatory documents related to professional expertise;

- Industries or businesses with special accounting, auditing, and reporting requirements;

- New issues arising;

- Legal requirements and regulations of competent authorities, especially international legal requirements.

c. Maintain the operation of the archive department and reference websites or other means, such as:

- Reference materials in departments or companies;

- Establish a professional handbook and circulate professional guidance documents, including those related to specialized industries and other professional fields;

- Maintain the practice of seeking advice from other companies and individuals;

- When encountering complex issues, seek advice from a group of experts.

2. Assign dedicated personnel and define their authority in the consulting area.

a. Assign personnel to manage records with legal authorities;

b. Assign officers to monitor specific industries or businesses;

c. Inform all staff about the authority of dedicated personnel and procedures for resolving differing opinions.

3. Specify the storage of documents regarding the results of consulting advice:

+ Responsibility for storing documents;

+ Location and conditions for using stored documents;

+ Store files related to consulting advice results for reference and research purposes.

F- MAINTAINING AND ACCEPTING CLIENTS

Policy

During the process of maintaining existing clients and evaluating potential clients, the auditing firm must consider its independence, service capacity, and the integrity of the client's management board.

Procedures

1. Establish procedures for evaluating and accepting potential clients.

a. Client evaluation procedures include:

- Collecting and reviewing existing documents related to potential clients, such as financial reports, tax filings;

- Exchanging information with third parties about potential clients, about the Board of Directors (or head) and key staff;

- Consulting with the previous year's auditor about issues related to the Board of Directors' integrity; about disagreements between the Board of Directors on accounting policies, audit procedures, or other important issues and reasons for changing auditors;

- Considering special situations or risks associated with the contract;

- Evaluating the independence and capability of the audit firm in serving potential clients;

- Must determine that accepting clients does not violate the principles of professional ethics.

b. Assign one person or a group of people at an appropriate management level to evaluate information and make decisions to accept or reject clients.

c. Inform employees about the company's client acceptance policies and procedures.

d. Assign someone responsible for monitoring compliance with the company's client acceptance policies and procedures.

2. Evaluate clients when special events occur to decide whether to continue the relationship with the client.

a. Special events requiring client evaluation include:

- At the end of a certain period;

- When there are significant changes in one or more factors:

+ Board of Directors;

+ Chief Executive Officer (or head);

+ Shareholders;

+ Legal advisors;

+ Financial situation;

+ Litigation status, disputes;

+ Contract violations;

+ Industry and business nature of the customer.

b. Assign one or a group of persons at an appropriate management level to assess the information and make a decision on whether to continue maintaining this customer.

c. Inform employees about the company's customer maintenance policy and procedures.

d. Assign a person responsible for monitoring and supervising the implementation of the company's customer maintenance policies and procedures.

G - INSPECTION

Policy

The auditing firm must regularly monitor and review the adequacy and effectiveness of the implementation of quality control policies and procedures for audit activities within the company.

Procedures

1. Establish the company's inspection procedures, contents, and programs.

a. The inspection procedures include:

- Determining objectives and establishing an inspection program;

- Providing guidelines on the scope of work and standards for selecting items to be inspected;

- Setting cycles and times for inspections;

- Establishing regulations for resolving disagreements that may arise.

b. Set requirements regarding qualifications and professional expertise for selecting inspectors.

c. Conduct inspection activities:

- Review and inspect compliance with the company's quality control policies and procedures for audit operations;

- Review and inspect adherence to professional standards and the company's quality control procedures for a selected audit contract.

2. Specify reporting of findings from inspections to appropriate management levels, specify the review of activities conducted or planned, and stipulate the re-examination of the entire system of quality control for audit operations.

a. Discuss issues discovered during the inspection process with the responsible party;

b. Discuss issues discovered during the inspection of selected audit contracts with the company's supervisory responsible party;

c. Report general and specific findings from selected audit contracts and propose measures already implemented or planned to the board of directors;

d. Determine the need to modify quality control policies and procedures for audit operations based on inspection results and related issues.

STANDARD NO. 320

MATERIALITY IN AUDITING
(Issued pursuant to Decision No. 28/2003/QĐ-BTC)
dated March 14, 2003 of the Minister of Finance)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe basic principles, procedures, and guidance on the application of these principles and procedures relating to the responsibilities of auditors and auditing firms when determining materiality in financial statement audits and the relationship between materiality and audit risk.

02. When conducting an audit, auditors must pay attention to the materiality of information and its relationship to audit risk.

03. This standard applies to financial statement audits and is also applicable to other financial information audits performed by auditing firms.

Auditors and auditing firms must comply with the provisions of this standard during the financial statement audit process.

The audited entity (client) and users of the audit results must have necessary knowledge of this standard to coordinate work and handle relationships related to the determination of the materiality level of the audited information.

Terms in this standard are understood as follows:

04. Materiality: A term used to express the importance of a piece of information (an accounting figure) in financial statements.

Information is considered material if its absence or lack of accuracy would affect the decisions of users of financial statements. The materiality level depends on the importance and nature of the information or error being evaluated in a specific context. Materiality is a threshold, a dividing point rather than the content of the information itself. The materiality of information must be considered both quantitatively and qualitatively.

CONTENT OF THE STANDARD

Materiality

05. The objective of financial statement auditing is for auditors and auditing firms to provide an opinion confirming whether the financial statements are prepared in accordance with current accounting standards and regulations (or accepted), comply with relevant laws, and fairly and reasonably reflect significant aspects. Determining the materiality level is a professional judgment task for auditors.

06. When planning an audit, auditors must determine an acceptable materiality level to serve as a standard for detecting significant quantitative errors. However, to evaluate errors considered material, auditors must also consider both the quantitative and qualitative aspects of the error. For example, non-compliance with current accounting regulations can be considered a material error if it leads to incorrect presentation of indicators in financial statements, causing users of financial information to misunderstand the essence of the issue; or failing to disclose issues related to the discontinuous operation of the enterprise in financial statements.

07. Auditors should consider the possibility of numerous small errors that, when aggregated, have a significant impact on financial statements, such as: An error in the end-of-month accounting procedure could become a potential material error if that error continues to recur each month.

08. Auditors should consider materiality from both the overall degree of error in financial statements in relation to the degree of detail of account balances, transactions, and information presented in financial statements. Materiality can also be influenced by other factors such as legal requirements or issues related to different items in financial statements and their interrelationships. The review process may reveal various materiality levels depending on the nature of the issues raised in the audited financial statements.

09. Auditors must determine materiality when:

a. Determining the content, schedule, and scope of audit procedures;

b. Evaluating the impact of errors.

The relationship between materiality and audit risk

10. When preparing the audit plan, the auditor must consider factors that may give rise to material misstatements in the financial statements. The auditor's assessment of materiality related to account balances and significant types of transactions will assist the auditor in identifying items that need to be tested and determining whether sampling procedures or analytical procedures should be applied. The assessment of materiality related to account balances and significant types of transactions will help the auditor select appropriate audit procedures, and the combination of these appropriate audit procedures will reduce audit risk to an acceptable level.

11. In an audit, materiality and audit risk have an inverse relationship: the higher the materiality, the lower the audit risk, and vice versa. The auditor must take this relationship into account when appropriately determining the nature, timing, and extent of audit procedures, such as: when preparing the audit plan, if the auditor determines that the acceptable level of materiality is low, the audit risk will increase. In this case, the auditor may:

a. Reduce the assessed level of control risk by expanding or performing additional control testing to demonstrate the reduction in control risk; or

b. Reduce detection risk by modifying the nature, timing, and extent of planned detailed testing procedures.

Materiality and audit risk in the evaluation of audit evidence

12. The results of the auditor's assessment of materiality and audit risk at the initial audit planning stage may differ from the results of assessments at different points during the audit process. These differences are due to changes in actual circumstances or changes in the auditor's understanding of the audited entity based on collected audit results, such as: when planning the audit before the end of the fiscal year, the auditor assesses materiality and audit risk based on pre-estimated operating results and financial conditions of the enterprise. If there are significant differences between the actual financial condition and operating results of the enterprise compared to the estimates, the assessment of materiality and audit risk will change. Furthermore, while planning the audit, the auditor usually sets a lower acceptable level of materiality than the level used for evaluating audit results to enhance the likelihood of detecting errors.

Evaluating the impact of errors

13. When assessing the truthfulness and fairness of the financial statements, the auditor must evaluate whether the aggregate of errors discovered during the audit but not yet corrected constitutes a material error.

14. The aggregate of uncorrected errors includes:

a. Errors detected by the auditor this year, including those detected in previous years but not yet corrected during the audit year;

b. The auditor's estimate of other undetectable errors (projected errors) in the financial statements for the audit year.

15. The auditor needs to determine whether the uncorrected errors could constitute a material error. If the auditor concludes that the aggregate of these errors is material, the auditor must take measures to reduce audit risk by supplementing necessary audit procedures or requesting the Director of the audited entity to adjust the financial statements.

16. In the event that the Director of the audited entity refuses to adjust the financial statements, and the results of additional audit procedures allow the auditor to conclude that the aggregate of uncorrected errors is material, the auditor must review and modify the audit report accordingly with Vietnam Auditing Standard No. 700 - Audit Report on Financial Statements.

17. In the event that the aggregate of discovered but uncorrected errors approximates the predetermined materiality level, the auditor must consider the possibility of undetected errors combined with discovered but uncorrected errors forming a material error. In such cases, the auditor must reduce audit risk by supplementing necessary audit procedures or requesting the Director to adjust the financial statements to correct the discovered errors.

AUDITING STANDARD NO. 501

ADDITIONAL AUDIT EVIDENCE FOR SPECIFIC ACCOUNT BALANCES AND EVENTS

(Issued pursuant to Decision No. 28/2003/QĐ-BTC)
dated March 14, 2003 of the Minister of Finance)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe principles, basic procedures, and guidance on the application of principles and basic procedures related to obtaining additional audit evidence for specific account balances and events during the audit of financial statements. The principles and procedures prescribed in this standard supplement those prescribed in Standard No. 500 "Audit Evidence."

02. Applying the principles and procedures presented in this standard will assist auditors and accounting firms in collecting sufficient appropriate audit evidence for specific account balances in financial statements and certain related events.

03. This standard applies to audits of financial statements and is also applicable to audits of other financial information and related services provided by accounting firms.

Auditors and accounting firms must comply with the provisions of this standard during the audit process.

The audited entity (client) and users of the audit results must have the necessary knowledge of this standard to coordinate work and handle relationships related to the provision and collection of audit evidence for specific account balances and events.

CONTENT OF THE STANDARD

04. Specific account balances and events in the audit of financial statements typically include:

- Inventory;

- Accounts receivable;

- Long-term investments;

- Litigation and disputes;

- Information about areas or geographic regions.

The items and events identified as significant depend on each audit unit according to the auditor's assessment. When an item or event is determined to be significant, the auditor must perform the following tasks:

Participate in inventory counts

05. The audited entity must establish procedures for physical inventory counts and conduct at least one such count annually as a basis for verifying the reliability of the ongoing recording system and preparing financial statements.

06. In cases where inventory is deemed material in the financial statements, the auditor must collect sufficient appropriate audit evidence regarding the existence and condition of the inventory by participating in the physical inventory count process, unless participation is not feasible. When the entity conducts the count, the auditor may only observe or directly participate in sampling the inventory count to gather evidence about compliance with the counting procedures and verify the reliability of these procedures.

07. If the auditor cannot participate in the physical inventory count on the day the entity performs it, they must participate in a recount of some items at another time, and if necessary, check the changes in inventory during the period between the recount date and the entity's count date.

08. If the auditor cannot participate in the inventory count, for example due to the nature and location of the count, the auditor must determine whether alternative inspection procedures can be performed to collect sufficient appropriate audit evidence regarding the existence and condition of the inventory, to avoid issuing a qualified opinion due to limited scope, such as reviewing post-inventory count sales documents which may provide appropriate audit evidence.

09. If the auditor plans to participate in the physical inventory count or perform alternative inspection procedures, they must consider the following factors:

- Characteristics of the accounting system and internal control system related to inventory;

- Potential risks, control risks, detection risks, and the materiality of the inventory account;

- Whether established inventory counting procedures have been communicated to those performing the count;

- Inventory counting plan;

- Location of inventory count;

- The necessity of expert participation in the count.

10. If the auditor has participated in the physical inventory count one or more times during the year, they only need to observe the implementation of the counting procedures and sample inventory checks.

11. If the entity estimates the quantity of inventory, such as estimating the volume of a pile of coal, the auditor must review the reasonableness of this estimation method.

12. If the physical inventory count is conducted simultaneously at multiple locations, the auditor must select appropriate locations to participate in the count based on the significance of the type of inventory and the assessment of potential risks and control risks at these locations.

13. The auditor must review the audited entity's regulations on inventory counts:

a. Implementation of control procedures, such as reviewing weighing, measuring, recording, and inventory entry and exit methods; record-keeping procedures for inventory ledgers and cards; inventory count sheet preparation and consolidation procedures;

b. Determination of work-in-progress, slow-moving, obsolete, or damaged goods, goods sent for processing, consigned goods, entrusted goods, goods received for processing, goods sold on consignment, etc.;

c. Procedures related to internal inventory flow, inventory entries and exits before and after the count date.

14. To ensure that the inventory counting procedures prescribed by the entity are strictly followed, the auditor must monitor the implementation of the counting procedures and may directly participate in sampling the inventory count. The auditor must recheck the accuracy and completeness of the inventory count sheets by selecting and rechecking some actual inventory items against the count sheets or selecting and checking some count sheets against the actual inventory items. In the count sheets reviewed, the auditor should consider retaining certain count sheets to assist in future reviews and examinations.

15. The auditor must also review the year-end closing procedures, mainly the details of inventory value flows immediately before, during, and after the count to be able to verify the accounting of these inventory values.

16. In practice, the physical inventory count may be conducted at a different time from the year-end. Typically, this approach is applied only when the risk of control is assessed as low or moderate. In this case, the auditor must perform appropriate procedures to examine whether the changes in inventory between the count date and the year-end have been accurately recorded.

17. If the audited entity uses periodic inventory counting methods to account for inventory, the inventory value is determined at year-end, but the auditor still needs to perform additional procedures to assess whether significant discrepancies between the count figures and the ledger figures have been identified and checked to see if these discrepancies have been adjusted.

18. The auditor must review the final inventory list that has been counted to determine whether it fully and accurately reflects the actual inventory.

19. If inventory is controlled or stored by a third party, the auditor must request the third party to confirm directly the quantity and condition of the inventory they are holding for the entity. Depending on the significance of this inventory, the auditor must consider the following factors:

- The integrity and independence of the third party;

- The necessity of direct participation in the count or allowing another auditor or auditing firm to participate in the count.

- The necessity for a report from another auditor regarding the appropriateness of the accounting system and internal control system of the third party to ensure that the inventory count is accurate and that the inventory is properly maintained;

- The necessity to review documents related to inventory held by the third party; For example: Receipts, or confirmation from others currently holding the collateral assets;

Confirmation of receivables

20. In cases where receivables are deemed significant in the financial statements and there is a likelihood that debtors will respond to requests for confirmation of debts, the auditor must plan to request direct confirmation from debtors of the receivables or the figures forming the receivable balances.

21. Direct confirmation will provide reliable audit evidence regarding the existence of receivables and the accuracy of the balances. However, this confirmation typically does not provide sufficient evidence regarding the collectability of receivables or other receivables not recorded.

22. If the auditor considers that debtors will not respond to letters requesting confirmation of receivables, alternative procedures must be anticipated; For example: Reviewing documents forming the receivable balances.

23. The auditor may select receivables to be confirmed to ensure the existence and accuracy of receivables overall, including those affecting identified audit risks and other planned audit procedures.

24. The letter requesting confirmation of receivables sent by the auditor shall clearly state the authorization of the audited entity and allow debtors to directly provide information to the auditor.

25. The auditor's letter requesting confirmation of receivables (which may include confirmation of payables) in Vietnamese Dong and foreign currency (if applicable) has two forms:

- Form A: Clearly states the receivable amount and requests the debtor to confirm whether it is correct or how much (See Appendix No. 01);

- Form B: Does not clearly state the receivable amount but requests the debtor to state the receivable amount or provide other comments (See Appendix No. 02).

26. Form A confirmation (as per paragraph 25) provides more reliable audit evidence than Form B confirmation (as per paragraph 25). The choice of which form of request to use depends on the specific circumstances and the auditor's assessment of inherent risk and control risk. Form A is more appropriate when inherent risk and control risk are assessed as high.

27. The auditor may combine both forms of confirmation. For example: When total receivables include a limited number of large receivables and a large number of small receivables, the auditor may request confirmation of all or some of the large receivables under Form A, and accept confirmation of a large number of small receivables under Form B.

28. After sending the confirmation letter for a reasonable period of time, if debtors have not responded, the auditor must send a follow-up letter. Exceptional non-responses require thorough investigation.

29. The auditor must perform alternative procedures or continue to investigate and interview when:

- No response letter is received;

- The response letter confirms a different amount than the balance of the audited entity;

- The response letter contains other comments.

After performing alternative procedures or continuing investigations and interviews, if there is still insufficient reliable evidence or alternative procedures cannot be performed, the difference is considered an error. For example: Performing alternative procedures such as reviewing sales invoices and receipts for receivables for which no response letter was received.

30. In practice, when control risk is assessed as low, the auditor may request confirmation of receivable balances at a date other than the year-end. For example: When the auditor must complete the audit within a very short period after the year-end, the auditor must review transactions occurring between the date of the receivable confirmation and the year-end.

31. If the Managing Director of the audited entity requests the auditor not to send confirmation letters to certain debtors, the auditor must consider whether this request is justified. For example: In cases where a receivable is in dispute between the parties, or where confirming the receivable would negatively impact ongoing negotiations between the entity and the debtor. Before agreeing to the request, the auditor must review evidence supporting the Managing Director's explanation. In this case, the auditor must apply alternative procedures to the balances of receivables for which no confirmation letters were sent.

Evaluation and Presentation of Long-term Investments

32. In cases where long-term investments are deemed significant in the financial statements, the auditor must gather appropriate audit evidence regarding the evaluation and presentation of long-term investments.

33. Audit procedures for long-term investments usually aim to determine whether the entity has the ability and intention to hold these investments long-term and to obtain explanations about the long-term investments.

34. Audit procedures typically include reviewing financial statements and other relevant information, such as determining and comparing market prices of securities with the book value of long-term investments as of the date of the audit report.

35. If the market price is lower than the book value, the auditor must consider the need to establish impairment provisions. If there is doubt about the recoverability of the investment, the auditor must consider appropriate adjustments and disclosures presented in the financial statements.

Litigation and Disputes

36. Litigation and disputes involving the audited entity that may have a significant impact on the financial statements must be disclosed in accordance with regulations.

37. The auditor must conduct procedures to identify lawsuits and disputes related to the entity that may have a significant impact on the financial statements. These procedures include:

- Discussing with the Director and requesting a statement of explanation;

- Reviewing minutes of Board of Management meetings and correspondence with the entity's legal advisors;

- Checking legal advisory fees;

- Using all relevant information regarding lawsuits and disputes.

38. When lawsuits or disputes have been identified or when the auditor suspects that there are lawsuits or disputes, the auditor must request the entity's legal advisor to directly provide information. In this way, the auditor will collect sufficient audit evidence about the matters and the extent of damage affecting the entity's financial statements.

39. The letter requesting the entity's legal advisor to provide information about lawsuits and disputes must be signed by the audited entity and sent by the auditor, including the following contents:

- A list of lawsuits and disputes;

- The Director's assessment of the consequences of lawsuits and disputes and the financial impact estimate of the matter, including related legal costs;

- Requesting the entity's legal advisor to confirm the reasonableness of the Director's assessments and provide additional information to the auditor.

40. The auditor must review the developments of lawsuits and disputes up to the date of signing the audit report. If necessary, the auditor may collect updated information from the legal advisor.

41. In cases where the matter is very complex or there is no agreement between the audited entity's Director and the legal advisor, the auditor must meet directly with the legal advisor to discuss the consequences of the matter. This discussion must have the consent of the audited entity's Director and should involve a representative of the audited entity's Board of Directors.

42. If the audited entity's Director does not allow the auditor to communicate with the entity's legal advisor, it will limit the scope of the audit and the auditor must issue a qualified opinion or a disclaimer of opinion. If the client's legal advisor refuses to respond for valid reasons and the auditor cannot obtain sufficient audit evidence through alternative procedures, the auditor must determine whether this creates a limitation in the scope of the audit and may need to issue a qualified opinion or a disclaimer of opinion.

Information on areas or geographic regions

43. If information related to areas and geographic regions is determined to be material in the financial statements, the auditor must collect appropriate audit evidence regarding the information that needs to be presented in the financial statements in accordance with current accounting standards.

44. The auditor must consider information related to areas and geographic regions in relation to the overall financial statements. The auditor is not required to apply audit procedures to express an opinion on information related to areas and geographic regions, however, the concept of materiality must encompass both quantitative and qualitative elements, and the auditor's procedures to determine material information must take this into account.

45. Audit procedures for information related to areas and geographic regions typically include analytical and testing procedures appropriate to specific circumstances.

46. The auditor must discuss with the audited entity's Director the methods used to gather information related to areas and geographic regions, and determine whether these methods comply with current accounting standards and ensure their consistent application. To do this, the auditor must examine sales revenue, inter-area or inter-regional transfer costs; exclude internal transactions within an area or region; compare with plans and other forecasts; For example: The percentage of profit margin on sales revenue and the allocation of assets and costs among departments are consistent with previous periods and are fully disclosed in the financial statements when there is inconsistency.