Overview on the Audit Practice in Vietnam

The audit history of Vietnam dates back to the 1991 when the first two local firms, namely VACO and AASC were established in response to the changes in Vietnam economy from a centrally planned to a open market economy. The audit market was then opened to large international firms formerly known as “Big Six” after the first foreign investment license granted to Ernst & Young in 1992.

Over the 14 years of local operation in the booming of the market and the presence of international firms, Vietnam audit is still in its infancy. Many Vietnamese percept audits as inspection or investigation of fraud and corruptions activities, which have been common function of various “investigation bodies” of the Government, especially in the SOEs sector.

Legal framework for audit was established with the issuance of regulations on state audit, independent audit and internal audit in the 1990s.

In the 1999, the first series of six Vietnamese Standards on Auditing were issued, being adapted from International Standards on Auditing (ISA). This shows the efforts of the Government to align the audit with international standards and practice. This is also the requirement from investors and public to have reliable and transparent financial information.

As of 30 May 2005, there are 33 independent audit standards - VSA issued by the MOF, most of which were closely adapted from ISA.

The audit market is now considered booming with the average annual growth rate of 10% and there is a lack of supply side in terms of qualified accountants and audit firm with good practice. An independent research shows that in the next 2 years, Vietnam will need 3,000 more Vietnamese qualified CPA and 2,000 more internationally qualified accountant (such as AICPA, ACCA and CPA Australia) to meet the demand of the market. It seems hard to achieve given the fact that so far there have been only 970 people granted VN CPA certificate (up to 30 May 2005).

It is believed that auditing in Vietnam will develop rapidly with radical changes with the establishment of Vietnam Association of Certified Practicing Auditor (VACPA) on April 15, 2005 and the hand-over of certain controlling functions from the MoF to this independent accounting body.

Vietnamese Auditing System

State Audit

The State audit of Vietnam was established under Decree No 70/CP dated July 11, 1994. It is considered as an independent body and has the duty to report audit results to the Government, National Assembly or its Standing Committee. It was considered as a department of the Government in monitoring the legal compliance and financial statement preparation.

There have been recently debates on roles, responsibility, effectiveness and the independence of the State Audit.

The law on the State Audit was passed by the National Assembly on 20 May 2005. The law stipulates the State Audit establishment and the Auditor General appointment by the National Assembly, making the State Audit independent from the Government

Internal Audit

Despite the fact that there are “Internal Audit Department” existing in large SOEs, the internal audit is a new concept in Vietnam.

Vietnamese businesses lack resources and expertise to establish a good and truly internal audit function. Many internal audit departments in large SOEs serve as a “cross checking” function of accounting department. Internal Audit of SOEs normally report to the Chief Accountant instead of the general director or the Board.

There is a trend that large SOE corporation dismiss the internal function and replace the gap by independent external audit. A good example is the Vietnam Airlines that hired external auditors to perform audit services in replacement of internal auditors.

Independent Audit

On 29 th January 1994, the Government issued Decree 07 on independent audit. The MoF then issued the guidance circular 60.

These first regulations are now superseded by the Decree 105 and 6 series of Vietnamese Standards on Auditing, which contain 33 standards adapted from International Standards on Auditing.

Except for the VSA 1000 - Audit of Finalized Report for Construction Completion, all other VASs are generally equivalent to the corresponding ISAs.

Equivalent in local audit standards with international one does not mean the audit practice is up to the international standards. It is because local firms lack experience and Vietnam have not yet issued “practical guidance”.

While international firms in Vietnam are supported by various practical training, up-to-date-audit manual and internal practical guidance, there is no evidence showing that audit manuals or something in equivalent are in existence in local audit firms.

With the recent establishment of many local audit firms and issuance of standards on auditing it is premature to assess the compliance of local audit firm with the issued standards. The more interesting points are to address how to make these standards practical, understandable and applicable at the firm level in local auditing firms. Extensive training or practical guidance may be required for local auditing firms in relation to the application of such standards.