The internal audit department is a key component in protecting assets and ensuring legal compliance within a business. According to Decree 05/2019/ND-CP, establishing this system has become a mandatory legal obligation for certain types of entities.
Understanding the function of the internal audit department helps managers identify risks early and make accurate strategic decisions. In the context of integration, this work is not just about checking books but also about evaluating the overall effectiveness of management. We invite readers to follow the detailed analysis below.
Is it mandatory for businesses to establish an internal audit committee?
Based on Article 10 Decree 05/2019/ND-CPThe law clearly specifies the entities required to conduct internal audits. However, the law requires the implementation of "auditing work" and does not mandate the establishment of a separate, independent department called an internal audit committee.
Specifically, the businesses required to comply include: listed companies; state-owned enterprises with more than 50% of their capital owned as parent companies; and state-owned enterprises that are parent companies. These entities must ensure that audits are conducted periodically as prescribed.
For other businesses, the government encourages the establishment of internal audit committees to improve governance capacity. Voluntary implementation allows businesses to proactively identify errors before intervention from tax authorities or independent audit firms.
| Business type | Legal status | Note |
| Listed company | Obligatory | According to Decree 05/2019/ND-CP |
| State-owned enterprises (>50% capital) | Obligatory | Parent-Subsidiary Company Model |
| Other private/limited liability companies | Encourage | Volunteer to increase credibility. |
| Unlisted public company | Encourage | There should be an internal audit committee. |
Is it appropriate to entrust the Supervisory Board with conducting internal audits?
Businesses can delegate this task to the Supervisory Board if it meets the requirements regarding personnel and independence. The law only requires that the auditing function be objective. Therefore, if the Supervisory Board has sufficient professional personnel, integrating the functions of the internal audit committee is entirely appropriate.
However, in large corporations, the internal audit department is usually under the direction of the Board of Directors' Audit Committee. This approach separates the functions of general oversight and detailed evaluation of the internal control system, helping to enhance transparency and risk management effectiveness.
If a company does not wish to maintain a permanent staff for its internal audit team, it is permitted to hire an external organization. independent auditThis is the optimal solution to ensure absolute professionalism and save long-term management costs for the organization.
Standards for personnel working in the Internal Audit Department
For the internal audit committee to operate legally, its personnel must meet the stringent standards set out in Article 11 of Decree 05/2019/ND-CP. This ensures the quality of reports and the practicality of recommendations regarding governance and finance.
Internal audit staff must hold a university degree in Accounting, Auditing, Finance, or Law. Their knowledge needs to be regularly updated through training courses on international standards and the latest tax regulations to meet job requirements.
In terms of experience, those working in the internal audit department need at least 5 years of professional experience or 3 years at their current organization. The head of department position requires excellent analytical skills to identify potential risks in the operating system.
List of standards for internal audit personnel:
- A university degree in a relevant field (Accounting, Auditing, Finance, etc.).
- Practical experience of 3-5 years, depending on the position.
- Extensive knowledge of specialized laws and the unit's operations.
- Good moral character, never disciplined for financial or accounting misconduct.
- Good communication skills are essential for effectively implementing the recommendations of the internal audit team.
Procedures for submitting and archiving reports by the Internal Audit Department.
The report prepared by the internal audit committee serves as the basis for management to adjust business behavior and strategies. According to Article 16 of Decree 05, the report must be sent promptly to the relevant authorities to ensure maximum enforceability.
In a company, the internal audit report is submitted to the Board of Directors, the Board of Members, and the Supervisory Board. The General Director also receives the report to directly instruct departments to rectify errors and improve business processes.
The internal audit report must clearly state the scope of the audit, the findings of errors, and recommendations for procedural improvements. If the unit has its own regulations, the report may also be sent to the risk management department for coordinated and decisive action.
The practical value of maintaining an Internal Audit Committee.
Maintaining an active internal audit team helps businesses avoid significant tax penalties. Auditors review transactions and ensure the validity of documentation, minimizing risks during audits and tax settlements by regulatory authorities.
Furthermore, the internal audit department plays an advisory role in optimizing cash flow and reducing wasteful expenses. In related-party transactions, this department controls pricing and ensures compliance with anti-transfer pricing regulations as required by the Ministry of Finance.
Board ownership internal audit Professionalism is a major "plus" with investors and banks. It demonstrates transparency and a commitment to compliance, making it easier for businesses to raise capital and build credibility in the business market.
Challenges in Implementing Internal Audit Committees in Vietnam
Many Vietnamese businesses face difficulties in operating internal audit departments due to reluctance from other departments. A lack of cooperation in providing data often leads to audit results that do not accurately reflect the actual situation.
Finding qualified personnel for an internal audit team at a reasonable cost is also a challenge. Many smaller organizations choose to outsource the service to leverage expert skills without maintaining a large, expensive audit department.
Independence is a major challenge; if the internal audit committee is influenced by the Executive Board, the report will lack objectivity. Therefore, establishing a mechanism for direct reporting to the Board of Directors is a prerequisite for this department to function properly.
Conclude
The internal audit department acts as the "gatekeeper" protecting the financial security and reputation of a business. Compliance with internal audit regulations is not only an obligation but also a strategic step towards sustainable and transparent business development.
MAN – Master Accountant Network provides financial statement auditing solutions and consulting services for establishing in-depth internal audit teams. We are committed to partnering with businesses to optimize risk management and legal compliance processes. Contact MAN today for the most professional advice!
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Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about the Internal Audit Department
Is it mandatory for a limited liability company with two members to establish an internal audit committee?
If not listed and without state capital on the 50% list, businesses are not required but encouraged to have an internal audit committee.
Is it possible to hire an independent auditing firm to replace the Internal Audit Department?
Yes. Decree 05/2019/ND-CP allows the outsourcing of services from qualified organizations to ensure professionalism and objectivity for the unit.
Does the Head of Internal Audit need a Certified Public Accountant (CPA) certification?
While CPA certification is not legally mandated, it does require appropriate qualifications. However, a CPA or CIA certification will significantly enhance the credibility of an internal audit team.
Does the internal audit committee have the authority to discipline employees who commit misconduct?
No. The internal audit committee only evaluates and makes recommendations. The power to impose sanctions rests with the legal representative or management based on the audit report's findings.
