For the first time in Vietnam, a unified governmental regulation on internal audit has been promulgated through Decree 05/2019/ND-CP dated January 22 2019 (Decree 05) which came into effect on April 1 2019. Previously, only a few entities, such as credit institutions and the State Bank of Vietnam, were required to conduct an internal audit under different legal regulations. Decree 05 has added new types of entities which are required to conduct an internal audit by April 1 2021 at the latest.
In addition to the traditional subjects that were required to conduct internal audits under the former regulations, now all listed companies (regardless of whether they have foreign/state-owned capital) must conduct internal audits under Decree 05. Additionally, certain non-listed enterprises are also now required to conduct internal audits. These include:
a) Enterprises in which the state owns more than 50% charter capital, and which are parent companies operating under the form of parent-subsidiary; and,
b) State-owned-enterprises which are parent companies and are operating under the form of parent-subsidiary.
Enterprises other than those set forth above are also encouraged to conduct an internal audit at their own discretion.
Primary content and schedule for internal audits
The internal audit must be performed annually and must be completed within 60 days from the end of every fiscal year. An unscheduled internal audit may be carried out in certain cases (for example, in cases where a material default or a high level risk that may negatively affect the enterprise's operations is identified).
The internal audit may be performed either by the enterprise itself or by a qualified audit company. A listed company has to issue internal audit rules which have been passed by its board of management (board of directors). Nevertheless, Decree 05 does not provide details on the rules and method of conducting an internal audit. This information will be issued later by the Ministry of Finance.
Conditions and criteria to be fulfilled by internal auditors
Internal auditors (irrespective of whether they are from an internal audit unit or independent audit company) have to meet certain conditions such as:
- They must having at least five years' experience of working in industries relevant to their undergraduate degree major; or at least three years' experience working for their existing employer; or at least three years' experience working in the audit, accounting or inspection sector; and,
- They must not have been subject, whether in the past or present, to any forms of disciplinary action at the level of a warning or a more severe form of discipline involving the violation of economic or financial administration or accounting activities.
It appears that Decree 05 is part of Vietnam's efforts to reform its legal system in order to follow international practices for enhancing transparency and effectiveness in corporate governance in all types of enterprises. Given that all listed companies are now required to conduct an internal audit as mentioned above, Decree 05 is expected to have a profound effect in terms of improving Vietnam's stock market practices. This effect should become apparent in the near future.
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