Circular No. 64/2004/TT-BTC guides the implementation of certain provisions of Government Decree No. 105/2004/NĐ-CP dated March 30, 2004 on independent auditing.

CIRCULAR

Guidelines for Implementing Certain Provisions of Decree No. 105/2004/NĐ-CP

dated March 30, 2004 on Independent Auditing

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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. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 105/2004/NĐ-CP dated March 30, 2004 on Independent Auditing issued by the Government, the Ministry of Finance issues guidelines for implementing certain provisions of Decree No. 105/2004/NĐ-CP as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. Rights of the audited entity

1.1. The audited entity has the right to select an auditing firm and an auditor who meets the lawful practice conditions stipulated in Article 23 of Decree No. 105/2004/NĐ-CP dated March 30, 2004 on Independent Auditing (hereinafter referred to as Decree No. 105/2004/NĐ-CP), except where otherwise provided by law, to sign a service contract for auditing.

When signing a service contract for auditing, the audited entity has the right to request the auditing firm to provide a "Registration List of Auditors' Practice Year..." of the firm with confirmation from the Ministry of Finance (Annex No. 02/KTV).

1.2. The audited entity shall not choose auditing firms that are operating but do not have at least three practicing auditors, auditing firms that do not meet the conditions for conducting auditing activities, or auditors whose names are not included in the list of registered practitioners confirmed by the Ministry of Finance to sign a service contract for auditing.

1.3. If the selection of an auditing firm falls within the scope regulated by the Law on Bidding, it must be carried out in accordance with the bidding regulations.

2. Requirement to Change Practicing Auditors and the Person Responsible for Signing the Audit Report

2.1. In cases where the audited entity signs an audit contract with an auditing firm for three consecutive years or more, starting from the date Decree No. 105/2004/NĐ-CP takes effect, every three years, the audited entity must request the auditing firm to change:

a) The practicing auditor responsible for auditing and signing the audit report;

b) The person responsible for signing the audit report, who is the Director (or someone authorized) of the firm (or branch of the firm) conducting the audit.

2.2. In cases where the Board of Directors of the auditing firm or the leadership of the auditing firm's branch only consists of one practicing auditor, the audited entity may only sign an audit contract with such auditing firm or its branch for up to three consecutive years starting from the date Decree No. 105/2004/NĐ-CP takes effect, and from the fourth year onwards, must switch to signing an audit contract with another auditing firm.

The requirement for the auditing firm to change the practicing auditor and the person responsible for signing the audit report must be clearly stated in the audit contract.

3. Right to Participate in Professional Organizations

3.1. Practicing auditors and auditing firms have the right to participate in domestic accounting and auditing professional organizations or international organizations permitted to operate in Vietnam, such as the Vietnam Association of Accountants and Auditors, the National Chief Accountant Club, the Association of Chartered Certified Accountants (ACCA), etc.

3.2. Each practicing auditor participating in a professional organization is an individual member. In cases where a company participates in a professional organization as a collective member, it must appoint a representative to participate.

3.3. Costs for participating in professional organizations can be recorded as management expenses of the auditing firm and must be supported by valid invoices and receipts. Practicing auditors who are not registered in an auditing firm must bear their own costs for participating in professional organizations.

4. Mandatory Audits

4.1. Annual financial reports of enterprises and organizations listed below must be mandatorily audited by an auditing firm:

a) Enterprises and organizations with foreign investment established and operating under Vietnamese law, including branches of foreign enterprises operating in Vietnam;

b) Organizations engaged in credit activities established and operating under the Law on Credit Institutions; state-owned banks and development funds;

c) Financial institutions and insurance companies, insurance brokerage companies;

d) For joint-stock companies and limited liability companies participating in stock market listing and trading, mandatory audits must be conducted in accordance with laws governing securities trading;

e) For enterprises and organizations borrowing from banks, mandatory audits must be conducted in accordance with laws governing credit.

4.2. Annual financial reports of enterprises and organizations listed below must be mandatorily audited in accordance with Decree No. 105/2004/NĐ-CP:

a) State-owned enterprises, including state-owned companies, state-owned joint-stock companies, state-owned limited liability companies, and other enterprises with over 50% state capital;

b) Final settlement reports of investment projects completed from Group A and above.

4.3. Other entities as prescribed by Law, Ordinance, Decree, and Prime Minister's Decision.

4.4. State-owned enterprises, Development Funds, and investment projects from Group A and above already included in the annual audit plan announcement of the State Audit Office do not need to be mandatorily audited by an auditing firm for that year.

II. SPECIFIC PROVISIONS

A. AUDITORS

1. Auditor Standards

1.1. Vietnamese citizens and foreigners residing in Vietnam who meet the following criteria shall be recognized as auditors:

a) Possess professional ethics, honesty, integrity, and a sense of compliance with the law; not falling under the categories specified in Clause 3, 4, 5, 6, and 7 of Article 15 of Decree No. 105/2004/NĐ-CP;

b) Hold a bachelor's degree in Economics - Finance - Banking or Accounting - Auditing from Vietnam or abroad recognized by the Ministry of Finance, and have at least five years of practical experience in finance and accounting or four years of practical experience as an audit assistant in an auditing firm.

In case the bachelor's degree is in a field other than Economics-Finance-Banking or Accounting-Audit, the individual must have a second bachelor's degree in one of these fields within three years or two years for assistant auditors, and the actual working time in finance and accounting must be at least five years or four years as an assistant auditor in auditing firms.

c) Possess the ability to use one of the five common languages: English, Russian, French, Chinese, and German, and be proficient in using computers;

d) Pass the auditor recruitment examination organized by the Ministry of Finance and obtain the Auditor Certificate issued by the Minister of Finance.

1.2. Vietnamese individuals and foreigners permitted to reside in Vietnam who hold a specialist accountant certificate or an accounting-audit certificate issued by foreign organizations or international organizations on accounting and audit, recognized by the Ministry of Finance, must pass the examination on Vietnamese economic, financial, accounting, and audit laws organized by the Ministry of Finance to obtain the Auditor Certificate from the Minister of Finance.

2. Conditions for practicing as an auditor

2.1. Conditions for practicing auditing:

a) Auditors can only register to practice auditing when they meet the conditions for practicing auditors as stipulated in Article 14 of Decree No. 105/2004/NĐ-CP;

b) In cases where an auditor works simultaneously for a non-auditing firm and an auditing firm, they can only register to practice auditing with the written consent of the legal representative of the non-auditing firm.

c) In cases where an auditor who has registered to practice auditing at one auditing firm transfers to another auditing firm, they must have a decision terminating their labor contract with the previous auditing firm.

2.2. Auditors whose names are not confirmed in the list of registered auditing practitioners by the Ministry of Finance shall not sign audit reports.

2.3. Auditors practicing auditing will be removed from the list of registered auditing practitioners in the following circumstances:

a) Violating any of the prohibited acts for practicing auditors as stipulated in Article 19 of Decree No. 105/2004/NĐ-CP;

b) Not actually practicing auditing but still registering to practice auditing;

c) Violating laws or violating professional ethics and discipline that are strictly prohibited by auditing laws.

2.4. Auditors who have been removed from the list of registered auditing practitioners shall not be allowed to register to practice again for three years from the date of removal.

2.5. Auditing firms using auditors whose names are not in the list of registered auditing practitioners to sign audit reports shall be subject to penalties under the law, both the auditing firm and the auditor.

2.6. The Ministry of Finance will not continue to confirm the list of registered auditing practitioners for auditors who have registered to practice auditing but do not actually practice auditing.

3. Annual knowledge update for auditors

3.1. The subjects required to update knowledge annually are auditors currently practicing and continuing to register to practice auditing in the following year.

3.2. Contents of annual knowledge update include:

a) Basic contents of laws on accounting, auditing, economic management, finance, taxation, and related issues;

b) New provisions added or amended in policies, systems, and regulations on accounting, auditing, economic management, finance, taxation, and related issues.

3.3. The duration of annual knowledge update is from forty to fifty hours per year.

3.4. Forms of annual knowledge update:

a) Concentrated training organized by the Ministry of Finance or organizations authorized by the Ministry of Finance; or

b) Self-study: Auditing firms organize annual knowledge updates for auditors according to the requirements and content specified by the Ministry of Finance. Auditing firms must retain records of the content, program, time, and list of participating auditors.

3.5. After each annual knowledge update course, auditors must participate in examinations on the updated content through multiple-choice tests, case studies, or written summaries and must meet the requirements to be eligible to register to practice auditing in the following year.

4. Registration to practice auditing

Annually, auditors must register to practice auditing with auditing firms according to the following regulations:

4.1. Conditions for registering to practice auditing for Vietnamese individuals:

a) Have a clear record, possess integrity and auditing professional ethics, and not belong to those prohibited from registering to practice auditing as stipulated in Article 15 of Decree No. 105/2004/NĐ-CP;

b) Hold the Auditor Certificate issued by the Ministry of Finance;

c) Have a labor contract with an auditing firm.

4.2. Conditions for registering to practice auditing for foreign individuals:

a) Permitted to reside in Vietnam for at least one year;

b) Possess auditing professional ethics and not belong to those prohibited from registering to practice auditing as stipulated in Article 15 of Decree No. 105/2004/NĐ-CP;

c) Hold the Auditor Certificate issued by the Ministry of Finance;

d) Have a labor contract with an auditing firm.

4.3. Individuals registering to practice auditing for the second time or more (after the first registration year following the issuance of the Auditor Certificate) must also meet the condition of fully participating in the annual knowledge update program as stipulated in Point 3 Part A Section II of this Circular.

4.4. Documents for registering to practice auditing include:

a) Application for registration to practice auditing (Annex No. 01/KTV);

b) Certified copy of the Auditor Certificate issued by the Ministry of Finance or signed and stamped with confirmation by the General Director of the auditing firm;

c) Other documents as stipulated in Point 2.1 Part A Section II of this Circular.

Those who have registered to practice auditing in the previous year, if approved by the General Director of the auditing firm to continue practicing in the following year, do not need to prepare new documents.

4.5. The Director of the auditing firm must base on the application for registration of auditing practice submitted by the auditor and the regulations concerning the conditions for auditing practice to examine whether the auditor meets the conditions for practicing auditing in that year and establish the "List of Auditing Practice Registration Year..." of the firm (Annex No. 02/KTV) to be sent to the Ministry of Finance (Department of Accounting and Auditing Regulations).

5. An auditor may not perform auditing in the following cases:

5.1. Not listed in the announcement of the List of Auditing Practice Registration confirmed by the Ministry of Finance in that year.

5.2. Performing or having performed in the immediately preceding year the following services for the audited entity:

a) Bookkeeping;

b) Preparing financial statements;

c) Serving as chief accountant;

d) Internal auditing;

đ) Valuing assets;

e) Management consulting;

g) Financial consulting;

h) Tax consulting or other services that affect the independence with respect to the audited entity.

5.3. If an auditor is performing or has performed auditing services in the immediately preceding year, they shall not provide the services specified in point 5.2 of Part A, Section II in that year.

5.4. Having economic and financial relations with the audited entity such as capital contribution, purchasing shares or bonds; lending funds; buying or selling other assets or engaging in other economic and financial transactions that affect the principle of independence in auditing activities.

5.5. Having father, mother, wife, husband, son, brother, sister, or half-sister/half-brother who are members of the Board of Directors or chief accountants of the audited entity.

5.6. Being deemed insufficiently qualified professionally or not meeting the conditions to perform auditing.

5.7. The audited entity making demands contrary to professional ethics or contrary to the requirements of auditing expertise or contrary to the provisions of the law.

6. Prohibited acts for auditors in practice

6.1. Contributing capital, borrowing, lending capital or purchasing any type of shares regardless of their value and quantity from the audited entity.

6.2. Purchasing bonds or other assets from the audited entity affecting the principle of independence in auditing activities.

6.3. Receiving any amount of money or material benefits from the audited entity outside the agreed service fee and costs in the contract, or taking advantage of the position of auditor to obtain other benefits from the audited entity.

6.4. Renting, lending, or allowing others to use their name and Auditor Certificate to carry out professional activities.

6.5. Working for two accounting or auditing enterprises at the same time.

6.6. Disclosing information about the audited entity known during the course of auditing, except where the audited entity agrees or the law provides otherwise.

6.7. Signing contracts for processing, agency import-export of materials and goods, sales agency, brokerage agency or engaging in other economic and financial transactions affecting the principle of independence in auditing activities.

6.8. Taking advantage of responsibilities and powers to gain personal benefit, colluding, covering up violations of the audited entity.

6.9. Signing simultaneously both the signature of the responsible auditor and the signature of the Director (or authorized person) on the audit report.

6.10. Engaging in other acts prohibited by auditing laws.

B. AUDITING FIRMS

1. Forms of organization established and operating of auditing firms

1.1. From the date Decree No. 105/2004/ND-CP takes effect, new auditing firms can only be established in one of two forms: partnership company or private enterprise. For foreign-invested enterprises established according to the Law on Foreign Investment in Vietnam.

1.2. Auditing firms established and operating before the effective date of Decree No. 105/2004/ND-CP under forms other than those prescribed in point 1.1 of Part B, Section II, if they wish to continue operating, must convert to one of the forms prescribed in point 1.1 of Part B, Section II. The conversion period shall not exceed April 21, 2007.

2. Branches of auditing firms

2.1. Branches of auditing firms are established and operate in accordance with the law and Article 21 of Decree No. 105/2004/ND-CP.

2.2. Branches of auditing firms must have at least two auditors holding an Auditor Certificate, including the head of the branch who must hold an Auditor Certificate, to be permitted to provide auditing services and issue audit reports.

3. Conditions for establishment and operation of auditing firms

3.1. New auditing firms established and operating in accordance with the law and Decree No. 105/2004/ND-CP must have at least three auditors holding an Auditor Certificate, including at least one of the business managers of the auditing firm must be an auditor holding an Auditor Certificate. One person holding an Auditor Certificate may only be the owner of one private enterprise or a partner of one partnership company.

3.2. Auditing firms may only sign contracts to provide auditing services when:

a) Meeting the conditions for auditing practice stipulated in Clause 1 and Clause 3 of Article 23 of Decree No. 105/2004/ND-CP;

b) Having a list of auditors registered for practice confirmed by the Ministry of Finance as prescribed in point 4 of Part A, Section II and point 1 of Part C, Section II of this Circular.

3.3. In case of newly recruited auditors obtaining an Auditor Certificate or newly hired, the auditing firm must notify the Ministry of Finance of the supplementary list of practicing auditors within thirty days from the date the auditor officially starts working or receives the Auditor Certificate.

3.4. In case the auditing firm has auditors leaving, ceasing practice, or being deprived of the right to practice, the auditing firm must notify the Ministry of Finance in writing along with the reduced list of practicing auditors within fifteen days from the date the practicing auditor leaves, ceases practice, or is deprived of the right to practice.

3.5. During its operation, the auditing firm must continuously ensure that it has at least three full-time practicing auditors. If the auditing firm fails to meet this condition for six consecutive months, it must cease providing auditing services.

4. Right to participate as a member of international accounting and auditing organizations

4.1. The auditing firm may only join as a member of an international accounting and auditing organization that has branches in countries other than the country where its main office is located.

4.2. Membership fees for international accounting and auditing organizations shall be included in business expenses based on actual costs and must be supported by valid invoices and receipts.

4.3. Within thirty days of being accepted as a member, the auditing firm must notify the Ministry of Finance about its membership, along with documents introducing the international accounting and auditing organization it is a member of, commitments regarding benefits and responsibilities as a member.

5. Purchase of professional liability insurance for auditing or establishment of a risk reserve fund

5.1. The auditing firm must purchase professional liability insurance for auditing or establish a Risk Reserve Fund to provide funds for compensating losses caused by the auditing firm's fault to clients and users of the audit results.

5.2. The auditing firm may purchase professional liability insurance for auditing from an insurance company legally operating in Vietnam. In cases where domestic insurance companies have not provided such insurance services, the auditing firm may purchase insurance from foreign insurance companies. Foreign-invested auditing firms and auditing firms that are members of international auditing organizations may purchase professional liability insurance from foreign insurance companies. Insurance costs shall be included in business expenses based on actual insurance costs and must be supported by valid invoices and receipts.

5.3. In cases where the auditing firm does not purchase professional liability insurance, it must establish a Risk Reserve Fund included in business expenses with an annual contribution rate of between 0.5% and 1% of audit service revenue (excluding value-added tax) depending on the financial capacity of the firm.

5.4. When compensation for losses caused by the auditing firm's fault to clients and users of the audit results is required, the auditing firm will be compensated by the insurance company according to the insurance contract, or use the Risk Reserve Fund to compensate for the loss.

In cases where the amount to be paid for compensation exceeds the insurance compensation or the balance of the Risk Reserve Fund, the excess amount will be included in business expenses or deducted from business capital after deducting any compensation received from the entity or individual causing the loss (if applicable) in accordance with current laws.

5.5. When the balance of the Risk Reserve Fund at the end of the fiscal year is equivalent to 10% of the audit service revenue for that fiscal year, no further contributions to the fund will be made.

6. Responsibilities of the Auditing Firm

6.1. The auditing firm is responsible under the law, towards clients according to signed audit contracts, and partially responsible towards users of audit results and services provided. The auditing firm is only responsible towards users of audit results when the users:

a) Have a direct interest in the audit service results of the audited entity on the date the audit report is signed; and

b) Have a reasonable understanding of the financial statements and the basis for preparing financial statements, which are accounting standards, accounting regulations, and relevant legal provisions; and

c) Have used the information in the audited financial statements carefully.

6.2. The extent of damage caused by the auditing firm for which the firm is liable to compensate clients shall be agreed upon by both parties or determined by competent authorities in accordance with the law. Forms and levels of penalties that can be agreed upon by both parties may include:

a) Termination of the signed audit contract;

b) Not allowed to sign audit contracts in subsequent years;

c) Deduction from the agreed audit fee;

d) A fine up to ten times the audit fee of the penalized contract year.

C. STATE MANAGEMENT OF INDEPENDENT AUDITING ACTIVITIES

1. Unified management of the list of auditors and auditing firms engaged in independent auditing nationwide

1.1. Within thirty days from the date of issuance of the business registration certificate, the auditing firm must notify the Ministry of Finance of information related to the firm and the establishment of the auditing firm, including: Articles of Association, business registration certificate, tax registration certificate.

1.2. Annually, before October 30, the auditing firm must notify the Ministry of Finance of the list of auditors registered to practice auditing at the company (Annex No. 02/KTV) along with the registration files of each auditor.

1.3. Within five working days from the date of receipt of the notification of the list of auditors registered to practice in accordance with regulations, the Ministry of Finance will confirm the list of auditors eligible to practice auditing for that year.

2. Publicizing the list of auditing firms and practicing auditors

2.1. Time limit for publicizing:

a) Every two years, the Ministry of Finance will publicly announce the list of auditors and auditing firms registered to practice, including notifying the tax authority and business registration authority of provinces and cities;

b) By December each year, the Ministry of Finance will notify the tax authority and business registration authority of provinces and cities (where financial statements of enterprises are submitted) the list of auditing firms qualified to provide auditing services confirmed by the Ministry of Finance.

2.2 Form of publicizing: Issuing publications or announcing in writing.

2.3 Content of publicizing:

a) A list of registered auditing professionals practicing auditing for each auditing firm, including: full name, professional qualifications, auditor certificate number, and other relevant information;

b) A list of auditing firms meeting the conditions to provide auditing services, including: company name, year of establishment, main office address, number of practicing auditors, and other relevant information.

2.4. Based on the notification from the Ministry of Finance regarding the list of auditing firms and practicing auditors meeting the conditions to provide auditing services, tax authorities and business registration agencies will not accept financial statements audited by auditing firms and auditors not confirmed by the Ministry of Finance. The tax authority has the responsibility to report to the Ministry of Finance about companies that have hired auditing firms without the necessary conditions to provide auditing services.

2.5. If through inspection work, or due to reports and determinations of violations of auditing practice regulations by auditing firms from clients or financial statement recipients, the Ministry of Finance will handle violations of independent auditing laws according to current regulations.

2.6. The costs for publicly disclosing the list of practicing auditors are contributed by auditing firms and are included in business expenses based on actual contributions within the limits set by current laws.

3. Responsibilities for providing information and supervising the quality of independent auditing activities

3.1. By February 15th at the latest every year, auditing firms must submit a written report to the Ministry of Finance on key indicators of their business operations in the previous year and indicators related to updating knowledge of practicing auditors in their firm (Annex No. 03/KTV).

3.2. The Ministry of Finance or accounting and auditing professional organizations authorized by the Ministry of Finance are responsible for inspecting and supervising the quality of auditing activities, and checking compliance with Decree No. 105/2004/ND-CP and guiding documents at auditing firms.

III. IMPLEMENTATION

1. This Circular shall take effect fifteen days after its publication in the Official Gazette.

2. This Circular replaces Circular No. 22-TC/CĐKT dated March 19, 1994 of the Ministry of Finance guiding the implementation of the Independent Auditing Regulation in the national economy issued together with Government Decree No. 07/CP dated January 29, 1994, and Circular No. 107/2000/TT-BTC dated October 25, 2000 of the Ministry of Finance guiding the registration of auditing practices. Previous provisions on independent auditing that conflict with this Circular are hereby abolished.

3. Ministries, Sectors, People's Committees, Departments of Finance, Tax Bureaus of Provinces and Cities directly under the Central Government are responsible for guiding enterprises to implement this Circular.

Any difficulties encountered during implementation should be reported to the Ministry of Finance for study and resolution./.