Circular No. 39/2011/TT-NHNN on independent audit for credit institutions and foreign bank branches

 

CIRCULAR

Regulations on independent audit for credit institutions,

foreign bank branches

Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

No. 06/2013/UBTVQH13 dated March 18, 2013;

The Minister of Finance issues this Circular guiding the registration, management, and public disclosure of the list of practicing auditors.

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam (hereinafter referred to as the State Bank) stipulates regulations on independent audit for credit institutions and foreign bank branches as follows:

PART I
GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular stipulates regulations on independent audit for credit institutions and foreign bank branches.

Article 2. Applicability

a) Commercial banks, cooperative banks;

a) Commercial banks, cooperative banks (hereinafter referred to as banks);

c) Microfinance organizations.

c) Microfinance organizations;

d) People's Credit Funds with total assets of VND 50 billion or more at the time of September 30 of the year immediately preceding the audit year.

Other People's Credit Funds shall implement independent audit according to separate regulations of the State Bank.

2. Branches of foreign banks.

3. Independent audit organizations, practicing auditors, auditors, and other organizations and individuals related to the independent audit of credit institutions and foreign bank branches.

4. Central People's Credit Fund during the period before conversion in accordance with the Law on Credit Institutions shall implement independent audit according to regulations applicable to banks.

Article 3. Explanation of Terms

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

1. Independent auditing of credit institutions, foreign bank branches refers to the practice of auditors conducting an independent audit of financial statements, operations of internal control systems of credit institutions and foreign bank branches, and other auditing tasks pursuant to the audit contract.

2. Audit of financial statements refers to the practice of auditors checking and issuing opinions on the truthfulness and fairness of significant aspects of the financial statements of credit institutions and foreign bank branches in accordance with auditing standards.

3. Audit of internal control system operations refers to the practice of auditors checking and issuing opinions evaluating compliance with the State Bank's guidelines in establishing and implementing internal control systems and the effectiveness of these systems.

4. Financial statements of credit institutions include financial statements of credit institutions under the law, consolidated financial statements of credit institutions when required to be consolidated under the law.

5. Internal control system refers to a set of mechanisms, policies, procedures, internal regulations, organizational structures of credit institutions and foreign bank branches established in accordance with the State Bank's guidelines and implemented to ensure timely prevention, detection, and resolution of risks and achieve requirements.

6. Independent auditing organizations include accounting firms and branches of foreign accounting firms in Vietnam.

7. List of non-audit entities refers to the list of independent audit organizations not allowed to conduct independent audits of credit institutions and foreign bank branches published by the State Bank.

Article 4. Scope of Audit

1. Annually, credit institutions and foreign bank branches must select independent audit organizations in accordance with this Circular to conduct independent audits:

a) Financial statements;

b) Operations of the internal control system.

2. The State Bank requires credit institutions to use one or more independent audit services when it deems necessary in the following cases:

a) Credit institutions are at risk of being placed under special supervision.

b) Credit institutions are considered for termination of special supervision.

c) Credit institutions are reorganized in accordance with Article 153 of the Law on Credit Institutions.

d) Other cases as prescribed by law.

3. Audits of semi-annual financial reports, final project settlement reports, and other audit activities of credit institutions and foreign bank branches (if any) shall be carried out in accordance with relevant laws.

Article 5. Encouragement of Audit

The State Bank encourages credit institutions and foreign bank branches to use independent audit services to audit limitations to ensure safety in their operations.

Chapter II
SPECIFIC PROVISIONS

Article 6. Time for Selecting Independent Auditors

1. Before the end of the fiscal year, credit institutions and foreign bank branches must select independent audit organizations in accordance with this Circular to audit the financial statements and operations of the internal control system for the next fiscal year.

2. In case the selected independent audit organization is included in the List of Non-Audit Entities for the following year published by the State Bank, credit institutions and foreign bank branches must choose another independent audit organization meeting the conditions stipulated in Articles 11 and 12 of this Circular to replace it. The deadline for selecting a replacement independent audit organization shall not exceed 30 days from the date the State Bank publishes the List of Non-Audit Entities.

Article 7. Authority to Select Independent Auditors

1. The Board of Members decides on selecting an independent auditing organization to audit a limited liability company credit institution.

2. The General Meeting of Shareholders decides or authorizes the Board of Directors to decide (in cases where the Charter of the credit institution provides for such) the selection of an independent audit organization to audit joint-stock credit institutions.

3. The General Assembly of Members decides or authorizes the Board of Directors to decide (in cases where the Charter of the credit institution provides for such) the selection of an independent audit organization to audit cooperative credit institutions.

4. The General Director (Director) decides on selecting an independent auditing organization to audit a foreign bank branch.

Article 8. Content of Independent Audit

1. Independent auditing of financial statements of credit institutions, foreign bank branches includes auditing:

a) Balance Sheet;

b) Report on business operation results;

c) Cash flow statement;

d) Notes to the financial statements.

2. Independent audit of the operations of the internal control system of credit institutions and foreign bank branches includes:

a) Audit of compliance with current laws and regulations of the State Bank regarding the internal control system of credit institutions and foreign bank branches;

b) Audit of operations aimed at ensuring the following requirements:

- Efficiency and safety in operations; protection, management, and safe, efficient use of assets and resources;

- Financial information and management information that are true, fair, complete, and timely.

Article 9. Independent Auditor's Opinion

1. Based on the audit results, practicing auditors and independent audit organizations must issue opinions in accordance with Clause 1, Article 48 of the Law on Independent Audit.

2. In case the audit report contains a disclaimer opinion, credit institutions and foreign bank branches must conduct a re-audit.

3. Within thirty days from the date of receiving the audit report with a disclaimer opinion, the credit institution or foreign bank branch must select another independent auditing organization that meets the conditions stipulated in Articles 11 and 12 of this Circular to re-audit the contents related to the disclaimer opinion in the audit report.

4. Within ninety days from the date of receiving the audit report with a disclaimer opinion, the credit institution or foreign bank branch must submit directly or send through postal service the results of the re-audit to the State Bank of Vietnam for reporting.

Article 10. Results of Independent Audit

1. The results of independent auditing of credit institutions, foreign bank branches include:

a) The audit report;

b) The management letter and related documents, evidence.

2. The audit report on the financial statements of the credit institution or foreign bank branch must comply with the provisions of the law on independent auditing, accounting standards, Vietnamese auditing standards, and other relevant legal regulations.

The audit report on the operation of the internal control system of the credit institution or foreign bank branch must assess the compliance with current laws and guidelines of the State Bank of Vietnam in establishing and implementing the internal control system, and evaluate the effectiveness of the system in preventing, detecting, and promptly addressing risks and other objectives of the credit institution or foreign bank branch.

3. The management letter must reflect specific issues and events during the audit process, including: actual status, risk potential, recommendations of the auditor, and the opinion of the management of the credit institution or foreign bank branch regarding the event. The management letter must at least include the following contents:

a) General approach, scope of the audit, and additional requirements;

b) Evaluation of significant changes in policies and practices affecting the financial statements, the internal control system of the credit institution or foreign bank branch;

c) Risks that may have a material impact on the financial statements, the internal control system of the credit institution or foreign bank branch;

d) Recommendations for adjustments by the independent auditing organization and practicing auditors concerning matters that have affected or could materially affect the financial statements, the operations of the internal control system of the credit institution or foreign bank branch;

đ) Disagreements with the management or operators of the credit institution or foreign bank branch regarding issues that may significantly affect the financial statements, the operations of the internal control system of the credit institution or foreign bank branch or the opinion of the practicing auditors and the independent auditing organization. Practicing auditors and the independent auditing organization must clearly state the resolution of such disagreements and the extent of their impact;

e) Other issues agreed upon in the audit contract.

Article 11. Conditions for independent auditing organizations conducting audits of banks, non-bank credit institutions, and foreign bank branches

1. Established and having at least three years of auditing experience in Vietnam;

2. Having a minimum capital of ten billion VND;

3. Having at least ten practicing auditors;

4. Having at least five practicing auditors participating in the audit of a bank, non-bank credit institution, or foreign bank branch, among whom there must be at least three practicing auditors with at least two years of auditing experience in the financial and banking sectors;

5. The practicing auditors and representatives of the independent auditing organization participating in the audit of a bank, non-bank credit institution, or foreign bank branch must meet the criteria stipulated in Article 13 of this Circular;

6. Not having any relationship of purchasing bonds, buying assets, investing capital, joint ventures, or purchasing shares with the bank, non-bank credit institution, or foreign bank branch being audited;

7. Not being a customer currently receiving credit and other services with preferential conditions from the bank, non-bank credit institution, or foreign bank branch being audited;

8. Not being the primary independent auditor of the same bank, non-bank credit institution, or foreign bank branch for five consecutive years immediately preceding the audit year;

9. Not performing asset valuation, management consulting, financial consulting, or risk management consulting for the same bank, non-bank credit institution, or foreign bank branch in the immediately preceding year and the audit year;

10. Not having been penalized for violations of the law on independent auditing in the two consecutive years immediately preceding the audit year;

11. Not being listed in the list of entities not allowed to be audited published by the State Bank of Vietnam;

12. Not falling under the cases prohibited from auditing as stipulated in Article 30 of the Law on Independent Auditing;

13. Meeting other independent auditing regulations prescribed in guiding documents of the Law on Independent Auditing.

Article 12. Conditions for independent auditing organizations conducting audits of microfinance organizations and people's credit funds

1. Auditors practicing and representatives of independent auditing organizations participating in auditing microfinance organizations and people's credit funds must meet the standards set forth in Article 13 of this Circular;

2. Not included in the list of entities not allowed to audit published by the State Bank;

3. Not subject to disqualification from auditing as provided for in Article 30 of the Independent Audit Law;

4. Comply with other regulations on independent auditing stipulated in guiding documents of the Independent Audit Law.

Article 13. Standards for practicing auditors and representatives of independent auditing organizations participating in auditing credit institutions and foreign bank branches

1. Hold a registration certificate for practicing auditors issued by the Ministry of Finance;

2. Practicing auditors who are Vietnamese citizens must have at least two years of auditing experience after obtaining the Auditor Registration Certificate;

3. Practicing auditors who are foreigners must have at least two years of auditing experience in Vietnam;

4. Not be a client currently receiving credit or other services under favorable conditions from the credit institution or foreign bank branch being audited;

5. Not have been penalized for violations of the Independent Audit Law in the two consecutive years prior to the year of auditing;

6. Not subject to disqualification from auditing as provided for in Article 19 of the Independent Audit Law;

7. Comply with other regulations on independent auditing stipulated in guiding documents of the Independent Audit Law.

Article 14. Responsibilities of independent auditing organizations and practicing auditors participating in the audit of credit institutions and foreign bank branches

1. Fully comply with the provisions of Article 18, Article 29 of the Independent Audit Law and other current laws regarding independent auditing.

2. Shall be responsible for the completeness, accuracy, and timeliness of information provided to credit institutions and foreign bank branches during the selection process of independent auditing organizations.

3. Understand and comply with legal regulations related to financial statements and operations of credit institutions and foreign bank branches.

4. Shall explain or provide information and data related to the audit upon request of the State Bank.

5. During the audit process, if it is found that the credit institution or foreign bank branch being audited does not comply with legal regulations within the scope of the audit, the auditor must report and recommend measures to prevent, correct, and address violations; record opinions in the audit report or management letter as required by Clause 2 and Clause 3 of Article 10 of this Circular.

6. After issuing the audit report, if there is suspicion or discovery of significant violations by the credit institution or foreign bank branch being audited due to non-compliance with laws and regulations within the scope of the audit, the independent auditing organization must promptly notify the audited entity and third parties according to Vietnamese auditing standards and inform the State Bank.

Article 15. Responsibilities of credit institutions and foreign bank branches

1. Select independent auditing organizations in accordance with this Circular.

2. Within thirty days from the date of deciding to select an independent auditing organization, submit directly or send via postal service a notification document about the selected independent auditing organization to the State Bank as follows:

a) Credit institutions (excluding people's credit funds) and foreign bank branches shall submit one copy to the State Bank (Supervisory and Inspection Authority) and one copy to the State Bank branch of the province or centrally-administered city where the credit institution has its main office.

b) People's credit funds shall submit one copy to the State Bank branch of the province or centrally-administered city where the people's credit fund has its main office.

3. Fully perform the obligations stipulated in Article 39 of the Independent Audit Law and other current laws regarding independent auditing.

4. Within ninety days from the end of the fiscal year, submit directly or send via postal service the results of the independent audit to the State Bank as specified in point a and point b of Clause 2 of this Article.

5. Conduct a re-audit in cases where the audit report contains a disclaimer opinion. Submit directly or send via postal service the results of the re-audit to the State Bank as specified in point a and point b of Clause 2 of this Article.

6. Timely report, explain, and propose recommendations to the State Bank for consideration and resolution in accordance with the law in the following cases:

a) Failure to ensure timely submission of the results of the independent audit;

b) Occurrence of disagreements or disputes regarding the results of the independent audit.

7. Publicly disclose financial information in accordance with current regulations.

Article 16. Responsibilities of the State Bank Branch in the province or city where the credit organization has its headquarters

1. Within thirty days from the date of receipt of the independent audit results and the re-audit results of credit organizations and foreign bank branches with their headquarters located within the jurisdiction, the State Bank branch in the province or city must submit a report to the Governor of the State Bank (through the Banking Inspection and Supervision Authority) regarding:

a) Analyzing, evaluating, and handling the independent audit results and re-audit results of credit organizations (excluding people's credit funds), and foreign bank branches within the jurisdiction;

b) Including the independent auditing organization in the list of organizations not allowed to audit credit organizations and foreign bank branches;

c) Requesting credit organizations to use one or more independent auditing services as stipulated in Clause 2, Article 4 of this Circular.

2. Analyzing, evaluating, and handling the independent audit results and re-audit results of people's credit funds within the jurisdiction.

3. Promptly reporting and proposing to the Governor of the State Bank (through the Banking Inspection and Supervision Authority) for handling cases as specified in Clause 6, Article 15 of this Circular.

4. Inspecting and supervising the implementation of this Circular and handling according to authority or recommending the Governor of the State Bank (through the Banking Inspection and Supervision Authority) to handle credit organizations and foreign bank branches that violate the provisions of this Circular and other laws on independent auditing.

Article 17. Responsibilities of the Banking Inspection and Supervision Authority

1. Summarizing, evaluating, and handling reports of the State Bank branch in the province or city as stipulated in Clause 1 and Clause 3, Article 16 of this Circular.

2. Analyze, evaluate, and recommend actions to address the results of independent auditing of credit institutions and foreign bank branches.

3. Reporting and proposing to the Governor of the State Bank for consideration and resolution of cases as specified in Clause 6, Article 15 of this Circular and requesting credit organizations to use one or more independent auditing services as stipulated in Clause 2, Article 4 of this Circular.

4. Inspecting and supervising the implementation of this Circular and handling according to authority or recommending the Governor of the State Bank to handle credit organizations and foreign bank branches that violate the provisions of this Circular and other laws on independent auditing.

5. Before June 30 each year, reporting to the Governor of the State Bank for consideration and publication of the list of organizations not allowed to audit credit organizations and foreign bank branches.

6. Providing professional opinions on monetary and banking matters in the audit report and management letter of credit organizations and foreign bank branches when requested by legal authorities.

Article 18. Resolution of Disputes Regarding Independent Auditing

The resolution of disputes regarding independent audits of credit organizations and foreign bank branches shall be carried out in accordance with the provisions of the Law on Independent Audits and related legal documents.

Chapter III
IMPLEMENTING PROVISIONS

Article 19. Effective Date

1. This Circular takes effect from January 1, 2012.

2. Decision No. 121/2005/QĐ-NHNN dated February 2, 2005, issued by the Governor of the State Bank on the regulations concerning independent auditing of credit organizations, shall cease to be effective from the date this Circular takes effect.

3. For audit contracts signed before the date this Circular becomes legally effective, they shall continue to be implemented according to the agreements already signed.

Article 20. Implementation

The Director of the Office, the Head of the Banking Inspection and Supervision Authority; Heads of units under the State Bank; Governors of State Bank branches in provinces and cities; Chairmen of the Board of Directors, Chairmen of the Board of Members, General Managers (Directors) of credit organizations and foreign bank branches; independent auditing organizations; practicing auditors, auditors, and related organizations and individuals are responsible for implementing this Circular.