Solutions for Sustainable Development of the Independent Auditing Sector in Vietnam

Current Status of the Independent Auditing Sector in Vietnam

More than 25 years ago, the Minister of Finance signed a decision to establish two of the first auditing companies under the Ministry of Finance, including VACO (now Deloitte) and AASC Auditing Firm Limited Liability Company, marking the formation of the Independent Auditing sector in Vietnam. In fact, independent auditing activities had appeared in Vietnam earlier when foreign-invested enterprises (FIEs) operated in Vietnam under the first Law on Foreign Investment promulgated by the National Assembly in December 1987.

Vietnam allowed the establishment of a representative office of Ernst & Young Vietnam in mid-1989 and subsequently permitted 100% foreign-owned auditing companies to operate in Vietnam (Ernst & Young Vietnam, KPMG, etc.) to accelerate the accounting and auditing reforms in Vietnam, meeting the requirements of opening up to attract FDI into Vietnam.

To date, Vietnam's independent auditing sector has rapidly matured, achieving remarkable development steps, establishing and affirming the reputation and position of independent auditing. At the same time, the industry has contributed to the public disclosure and transparency of economic and financial information of enterprises and organizations, serving the interests of enterprises, investors, capital owners, and partners.

Illustration (source: internet)

According to the Vietnam Association of Certified Public Accountants (VACPA), as of October 2016, Vietnam had 142 companies qualified to provide independent auditing services with over 3,800 personnel holding Vietnamese Auditing Certificates, offering services to approximately 36,000 enterprises and organizations across various economic sectors and types.

Despite the relatively short development process, independent auditing companies have continuously diversified their services, expanding audit and assurance services and developing consulting services. To date, these companies have provided over 30 different types of services, with core services being financial statement audits...

Statistics also show that revenue from the independent auditing sector has increased significantly over the years. During periods of stable economic growth, the revenue of the independent auditing sector doubled every five years; by 2015, total revenue reached 5,130 billion VND, increasing 17 times compared to the year 2000. The development of the independent auditing sector has created jobs for over 10,000 individuals working in auditing companies, of which, as of June 10, 2016, there were 1,647 certified auditors eligible to practice.

Not only has it grown in size, but the quality of auditors in auditing firms has also continuously improved through knowledge update programs, specialized training sessions, professional skills training, and international staff programs...

The independent auditing sector, especially large auditing firms, has paid attention to training and supplying many highly qualified, competent, and experienced personnel for the economy's enterprises, international organizations, public service providers, and state management agencies.

The development of Vietnam’s independent auditing field must be attributed to the presence and alongside top global auditing firms. To date, all the world's largest auditing companies have been licensed to operate in Vietnam. These companies are also key players in completing the legal framework for accounting - auditing management in Vietnam.

These firms have also closely collaborated with the Ministry of Finance, the State Audit, the State Securities Commission, and VACPA to introduce and apply several International Standards on Auditing (ISA), International Accounting Standards (IAS), and International Financial Reporting Standards (IFRS), thereby contributing to bringing Vietnam's accounting - auditing standards closer to international standards.

Simultaneously, right from the early days of operation, these companies have recruited, trained, and developed professional staff with good competence and deep specialization, solid professional ethics, and profound understanding of the legal framework, professional standards, and the practicalities of Vietnam’s business environment as well as international professional practices and standards.

Through training activities, foreign auditing companies have contributed to building a sense of investing in and developing professional expertise to meet international standards among personnel through sponsorship programs, providing scholarships for international certification exams such as ACCA, CPA Australia...

Affirming the Important Role in the Economy

Currently, independent auditing is not only an economic management tool but an important component of the national economy's management system. Independent auditing activities have established their position in the market economy, contributing to preventing and detecting waste, attracting foreign investment, transparently disclosing financial reports, and effectively serving the economic and financial management of the State and the business operations of enterprises.

In reality, independent auditing enhances the quality of economic and financial information, ensuring independence, objectivity, and honesty, contributing to transparency and creating trust among government agencies, customers, and related organizations. More importantly, independent auditing motivates the sustainable development of enterprises.

Furthermore, independent auditing helps banks and investors understand the investment results and capital use of enterprises as a basis for investment expansion or prompt capital recovery, profit-sharing, and risk management. Additionally, independent auditing assists the State in streamlining the apparatus, avoiding the need for annual financial and tax settlement approvals, providing accurate and prompt data for tax settlement and obligatory contributions, or equity distribution with enterprises...

Especially concerning the stock market, enhancing the transparency of the financial information of listed organizations and public interest companies is always prioritized. The quality of financial information provided by enterprises on the stock market heavily depends on the quality of auditing services provided by independent auditing firms.

Illustration (source: internet)

Since 2004, the State Securities Commission has issued decisions approving the first four audit firms to audit issuers, listed organizations, and securities businesses for the years 2005-2006 according to Decision No. 76/2004/QD-BTC dated September 22, 2004, of the Ministry of Finance.

From 2004 until now, through the management and supervision work of the State Securities Commission, the approved independent audit organizations have made significant positive impacts on the stock market.

As a result, listed organizations, large public companies, and securities businesses have promptly disclosed annual and semi-annual financial statements after audits and explained discrepancies between pre- and post-audit figures as required. The quality of enterprise accounting work has gradually improved, meeting the deadlines for financial reports completion and cooperating with auditing firms for prompt audits...

In reality, independent auditing forms the basis for attracting and calling for foreign investment. Without independent auditing or if independent auditing were not internationally recognized, it would be difficult to achieve today's foreign investment results in Vietnam. These independent auditing organizations, through providing audit, assurance, and related services to the market, build trust among enterprises and the investing public; between domestic enterprises and foreign economic organizations, and more broadly, the international community's trust in Vietnam.

The comprehensive development and international integration of the Independent Auditing sector in Vietnam, with active participation from foreign auditing firms, also contribute to accelerating the development of Vietnam's economy. Independent auditing actively participates in policy and legal framework building, social critique, ensuring policies align with the market economy, international standards, and the Vietnamese market.

Thus, Vietnam's independent auditing is approaching international models and standards through significant improvements in audit activities to ensure transparency and sanitize the financial markets and investment environment.

Solutions for Continued Development

It is forecasted that in the near future, competitive pressure in the auditing market will be more intense for Vietnamese auditing enterprises when foreign auditing firms enter or provide cross-border auditing services as permitted by the 2011 Independent Auditing Law. To promote sustainable development of the Vietnam Independent Auditing sector in the integration context, attention must be focused on the following issues:

Firstly, continue to improve the institutional framework. Currently, the legal framework related to independent auditing is relatively complete with the Independent Auditing Law passed by the National Assembly in 2011, Decree 17/2012/ND-CP detailing and guiding the implementation of several articles of the Independent Auditing Law issued by the Government of Vietnam on March 13, 2012...

However, to meet the development demands of the independent auditing sector in the current period and the deepening integration into regional and international markets, the legal framework for independent auditing activities needs to be reviewed and upgraded according to the requirements of Resolution 35NQ-CP of the Government of Vietnam on supporting enterprise development with the spirit of creating the State, serving and supporting enterprises, facilitating business environment improvement, and respecting the freedom of business according to the law.

The legal system for independent auditing must harmonize with the laws of countries in the region and internationally, promoting enhanced professional competence and audit service quality, quickly integrating Vietnam's independent auditing sector into full international recognition and advancement towards global standards.

Unnecessary regulations on managing independent audit practices must be eliminated; the authority and form of promulgating audit standards should align with international practices; exam organization for auditors (overly theoretical, academic-focused, primarily for certificate issuance)...

Secondly, enhance professional competence and audit service quality. Improving professional competence and audit service quality must be considered a continuous, regular task. Each auditing enterprise needs to seriously develop and implement Quality Management Regulations, clearly defining the responsibilities of execution, review, and quality control through each job phase and staff level.

Each auditor must exhibit professionalism by thoroughly understanding and complying with professional ethics, practicing discipline, persistently preventing and combating ethical violations. Resolutely oppose unfair competition through fee reduction, leading to inadequate audit quality.

Auditing enterprises should focus on professional investment, specialization, and computerization of service provision, becoming reliable partners. They can form joint ventures, mergers with large audit firms, or join international audit networks, combining and sharing each member's advantages to stand firm in competition and promote development and integration.

Thirdly, strengthen inspection and supervision of service quality for independent audit firms. Every year, the Ministry of Finance organizes quality service inspection teams, but inspections have only been conducted on a few small-scale companies in the market. In 2016, the Ministry of Finance also organized inspections for 15 auditing firms nationwide.

The results show that the firms fully complied with regulations related to registering and maintaining conditions for practicing auditors and maintaining conditions for providing audit services by audit firms and other legal regulations on independent auditing.

In the future, management agencies need to overcome difficulties to effectively implement inspection and supervision of service quality by independent audit firms, with inspection results widely publicized for companies to draw lessons. Violations found during inspections must be handled and publicly announced, ensuring deterrence and improving the State's role and capacity in managing the auditing sector in general and independent auditing in particular.

Fourthly, focus on training. Building a system of professional auditors requires enhancing training quality to meet international standards. Ongoing education, training, legal knowledge exchange, and skill training for auditors and professional staff are essential. Particularly, maintaining and rigorously adhering to professional ethics in accounting and auditing throughout ongoing professional careers. Consider altering the exam and certification process to align with international practices.

Fifthly, the Vietnam Association of Certified Public Accountants (VACPA) should comprehensively reform its activities, focusing on members, enhancing management capacity, innovating operational mechanisms, and being ready to take on and complete audit practice management tasks. In the coming time, VACPA should continue efforts to cooperate with the Ministry of Finance, state management agencies to develop the independent auditing sector to meet the increasing demands of the market economy in the deep integration phase, contributing to the successful implementation of the "Accounting – Auditing Strategy to 2020, with a vision to 2030."

In the long term, the State needs to research and reorganize professional associations in accounting and auditing towards a professional association focusing comprehensively on both fields, adopting globally common models. Only this professional association should undertake audit practice management tasks transferred by state agencies. Social professional associations in accounting, established on a voluntary basis, should operate like other social professional associations.

Sixthly, enhance international cooperation. Facing the trend of deep integration ahead, it is necessary to promote international integration, creating close ties and mutual recognition between Vietnam and countries in the region, the world, and international organizations; actively participate in the formulation of international financial reporting standards, international public sector accounting standards, international auditing standards through regional and global forums, especially continuing to update international audit standards, ensuring compliance with international audit standards...

Experience from over 25 years of development shows that the audit sector should capitalize on cooperation with international auditing firms to learn, share experiences, and strengthen training links... Encourage these firms to actively contribute ideas to build, develop, and complete the legal framework for accounting, auditing, and related economic, financial, and tax fields; actively participate in auditing activities, consulting in accounting - auditing support for Vietnamese enterprises to list shares or issue, list convertible bonds in foreign markets, assisting these firms in successfully integrating into stock and capital markets regionally and internationally.

Source: Master Doan Thi Hong Thinh - Finance Magazine

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