A compliance audit report is not only a legal document but also evidence of a company's accountability to regulatory authorities and shareholders. In the context of increasingly stringent laws, from the Accounting Law and the Tax Administration Law to regulations on electronic invoices such as Decree 123/2020/ND-CP and Circular 78/2021/TT-BTC, assessing the level of compliance becomes particularly important. Any errors can lead to heavy penalties, even serious legal risks, directly affecting the reputation and financial capacity of the business.
In an increasingly stringent legal environment, businesses need effective internal control systems and the ability to adapt flexibly. Compliance audit reports provide an independent view of the extent to which processes are being followed, especially in high-risk areas such as taxation, customs, and capital management. The application of Vietnamese Auditing Standards such as VSA 700 and VSA 705 contributes to ensuring the professionalism and reliability of reports, supporting businesses in improving governance and risk control.
Definition and role of compliance audit reports according to international and Vietnamese standards.
What is compliance auditing? Legal basis and foundation.
Compliance audit Compliance auditing is an audit activity aimed at assessing the audited entity's compliance with laws, regulations, and internal rules. Unlike financial statement audits, compliance auditing focuses not only on data but also considers qualitative and quantitative legal criteria. Understanding the true nature of compliance auditing helps businesses clearly define the scope, objectives, and value of the Compliance Audit Report in risk management and control.
The scope of a compliance audit report is broad, encompassing compliance with tax laws, industry regulations, and internal company policies. This report provides reasonable assurance that the entity's operations are conducted within the legal framework, thereby enabling management to promptly identify risks and make appropriate and effective corrective decisions.
The core role of compliance audit reports
Compliance audit reports act as a risk "filter," helping to identify, assess, and report potential compliance risks in a timely manner. For managers, receiving a detailed compliance audit report is crucial to proactively prevent violations before they become serious legal or financial issues. This is especially important in the accounting and tax fields, where minor errors in applying regulations and decrees can result in significant penalties from tax authorities.
The role of a compliance audit report is also demonstrated in strengthening the internal control system. When independent auditors point out weaknesses in processes, the entity will have a basis for improvement and standardization of operational processes. As a result, the quality of accounting data and the reliability of management information are enhanced. A high-quality compliance audit report is proof of professionalism and enhances the credibility of the business with stakeholders, including business partners and potential investors.
The importance of compliance audit reports for risk management and taxation.
In the context of increasingly完善 legal frameworks and governance standards, a proper understanding of compliance audit reports is essential for businesses. Compliance audits not only aim to detect violations but also reflect the level of adherence to laws, specialized regulations, and internal rules according to international and Vietnamese standards. The following content clarifies the concept, legal basis, and core role of compliance audit reports in risk management and improving operational efficiency.
Strengthening internal controls and mitigating compliance risks.
Compliance audit reports are effective tools for protecting businesses from compliance risks. These risks include legal risks (being sued, being fined), financial risks (tax arrears, disallowed expenses), and reputational risks (loss of trust from partners).
Recommendations in a compliance audit report help management identify and address gaps in the internal control system. For example, a finding of non-compliance with the payment approval process might lead the auditor to recommend tightening the "four eyes" rule in the payment process. Implementing these recommendations will make future compliance audit reports more positive.
Optimizing tax compliance: protecting business interests.
In the field of taxation, compliance audit reports are of particular importance. Auditors will thoroughly review key issues such as:
- Documentation for determining transfer pricing: Compliance with Decree 132/2020/ND-CP is mandatory.
- Conditions for VAT deduction and deductible expenses for corporate income tax: Ensure that the documents are valid and legal in accordance with the Tax Law and guiding Circulars (such as Circular 96/2015/TT-BTC).
- Personal income tax settlement: Ensure that the correct subjects, tax rates, and filing times are applied.
A compliance audit report can become an important reference document when tax authorities conduct inspections, helping to demonstrate a company's efforts and good faith in complying with tax laws. Conversely, ignoring the recommendations in a compliance audit report can lead to businesses facing back taxes and administrative penalties, especially under Decree 125/2020/ND-CP on administrative penalties in the field of taxation.
Objectives, scope, and evaluation criteria in compliance auditing.
For compliance audits to deliver tangible value, businesses need to clearly define their objectives, scope, and evaluation criteria. A compliance audit report not only confirms the level of compliance with laws and internal regulations but also helps identify errors, analyze their causes, and propose corrective measures. Clarifying these aspects helps the audit process stay focused, enhances the reliability of its conclusions, and supports management in proactively managing compliance risks.
Detailed objectives of preparing a compliance audit report.
The primary objective of a compliance audit is to provide an opinion confirming whether the audited activities fully comply with established rules and regulations. Specifically, the objectives of issuing a Compliance Audit Report include:
- Verify compliance with current legal regulations and accounting systems (such as Circular 200/2014/TT-BTC or Circular 133/2016/TT-BTC).
- Assess the completeness and validity of legal documents and records related to economic transactions.
- Clearly identify instances of non-compliance, classifying them by severity level and root causes.
- Propose constructive recommendations to improve processes and mitigate compliance risks.
Scope of compliance audit: areas requiring verification
The scope of a compliance audit report is determined based on the specific requirements of the audit engagement or as stipulated by relevant laws. Areas frequently audited include:
| Auditing Field | Content of Compliance | Relevant Legal Basis |
| Tax Law | Comply with regulations regarding VAT, corporate income tax, and personal income tax declarations and payments; use electronic invoices correctly. | Law on Tax Administration, Decree 123/2020/ND-CP, and current tax circulars. |
| Accounting System | Adhere to the principles of recognition, measurement, preparation, and presentation of financial statements according to VAS (Vietnamese Accounting Standards) and the enterprise accounting system. | Accounting Law, Accounting Guidance Circulars (200/133). |
| Contract Management | Comply with regulations on bidding, public procurement, contract signing and implementation as stipulated in the Civil Code and the Law on Bidding. | Civil Code, Bidding Law (if applicable). |
| Human Resources Management | Comply with labor laws, social insurance, health insurance, and internal salary and bonus regulations. | Labor Code, Social Insurance Law. |
Evaluation criteria in the compliance audit report
To prepare a highly reliable compliance audit report, auditors will use clear and verifiable evaluation criteria. These criteria include:
- Mandatory legal criteria: These are laws, decrees, and circulars issued by the State that the unit is obligated to comply with.
- Internal regulations and criteria: These are regulations, procedures, and manuals issued by the unit itself (such as the Financial Management Regulations, Payment Procedures).
- Contract criteria: These are terms and agreements signed with third parties (especially in projects funded by ODA or international loans).
The difference between written compliance and actual compliance will be clarified in the Compliance Audit Report.
Compare compliance audit reports with other types of reports.
Distinguishing between compliance audit reports and financial and operational audits is crucial to avoid confusion regarding objectives and outcomes.
Compliance audit report and financial audit report
In corporate governance practice, compliance audit reports and financial audit reports are often used concurrently but have different objectives and scopes of evaluation. Clearly distinguishing between these two types of reports helps businesses understand the true value of each type of audit, and recognize the relationship between legal compliance and the fairness and accuracy of financial statements in overall audits.
| Characteristic | Compliance Audit Report | Financial Audit Report |
| Main Objective | Assess the level of compliance with laws and regulations. | Assessing the accuracy and fairness of financial statements. |
| Criteria | Laws, internal regulations, contracts. | Accounting Standards (VAS/IFRS), Accounting System. |
| Output | Conclusions regarding compliance, identified violations, and recommendations for improvement. | An opinion on whether the financial statements contain material misstatements. |
| Affect | Legal risk management, internal control. | Decisions regarding investment, borrowing, and business performance evaluation. |
In many comprehensive audits, auditors will perform both types of audits, and compliance findings can affect the opinion on the financial statements. For example, non-compliance with invoicing regulations (Decree 123) can lead to disallowed expenses, distorting profits and impacting the Compliance Audit Report and financial statements.
Compliance audit report and operational audit report
Operational audits focus on the economy, effectiveness, and efficiency of operations. Compliance audits, on the other hand, focus on adherence to rules. Despite their differing objectives, these two types of audits often complement each other. An inefficient process (operational audit) often stems from non-compliance with established procedures (compliance audit). Properly classifying the nature of each type of audit will help optimize the benefits of a compliance audit report.
The audit report preparation process adheres to professional VSA standards.
The process of preparing a compliance audit report must strictly adhere to the Vietnamese Auditing Standards (VSA), ensuring the independence and objectivity of the audit opinion.
Plan and establish audit criteria.
The first step is to develop a detailed plan, including defining specific objectives, the scope of the audit, and especially the compliance criteria that will be applied. Auditors will thoroughly research relevant legal documents and internal regulations. Identifying compliance risks from the planning stage helps focus resources on key areas, such as related-party transactions or expenses without legitimate invoices. This thorough preparation is the foundation for the quality of the final compliance audit report.
Gather evidence and conduct compliance testing.
Following the planning phase, compliance audits enter the execution phase – a crucial stage that determines the quality of the audit findings. Here, auditors directly collect and evaluate audit evidence through records, documents, and appropriate compliance testing techniques. The results of this process form the basis for identifying findings, assessing the level of compliance, and shaping the core content of the Compliance Audit Report.
Auditors need to pay particular attention to large or complex economic transactions, ensuring that all compliance aspects are considered. For example, verifying deductible expenses when calculating corporate income tax must comply with both the Corporate Income Tax Law and the latest guidance documents from the General Department of Taxation.
Evaluating findings and improving compliance audit reports.
After gathering evidence, the auditor assesses the severity of each non-compliance finding. Findings are categorized into groups: legal violations, internal control deficiencies, or non-conformances to regulations. Based on this assessment, the auditor develops an audit opinion and finalizes the Compliance Audit Report.
A compliance audit report must strike a balance: it should both identify errors and propose feasible corrective solutions. All findings must be supported by specific audit evidence to enhance their persuasiveness.
The core content and required structure of a compliance audit report.
A compliance audit report is only truly valuable when it is constructed with the correct core content and adheres to the standard structure according to auditing practices and relevant standards. A clear and complete structure not only helps auditors express their opinions objectively and professionally but also makes it easier for management and regulatory bodies to assess the entity's level of compliance. The following section outlines the mandatory structure and key requirements for a standard compliance audit report.
Standard report structure
According to auditing practice and relevant Standards, a standard compliance audit report typically includes the following main sections:
Introduction
This section clarifies the audit subject, scope, objectives, and applicable audit criteria (e.g., application of the 2015 Accounting Law, the 2014 Value Added Tax Law, and other regulations). Simultaneously, the introduction defines the responsibilities of the audited entity's management for legal compliance, as well as the auditor's responsibilities for preparing the Compliance Audit Report.
Audit opinion
This is the most important part, where the auditor draws conclusions about the level of compliance. The audit opinion may be:
- Unqualified Opinion: The unit fully complies with all key regulations.
- Qualified Opinion: The unit complies, except for certain specific issues that are clearly stated.
- Adverse Opinion: The level of non-compliance is serious and widespread.
- Disclaimer of Opinion: It was not possible to gather sufficient evidence to express an opinion on compliance.
Findings and recommendations
This section details each instance of non-compliance or deficiency in internal controls. Each finding should include:
- Detailed description: Describe the violation or omission (e.g., failure to prepare a periodic compliance audit report).
- Basis (Criteria): Specify the legal text or regulation that has been violated.
- Affect: Analyze legal and financial risks (e.g., the risk of tax arrears and administrative penalties under the Tax Administration Law).
- Suggested solutions: Propose specific measures to the Board of Directors (e.g., issue new internal control procedures, adjust the accounting system).
Requirements for objectivity and professionalism
Compliance audit reports must be prepared objectively, independently, and based on authentic audit evidence. Auditors must not make subjective judgments but must base their assessments on specific laws, circulars, and regulations. Professionalism is also demonstrated by using standard, clear, and easily understandable language for both managers and authorities. The lack of necessary information in a compliance audit report can diminish the legal validity of the entire audit process.
Conclude
A compliance audit report reflects the maturity and discipline of corporate governance. It not only confirms compliance with laws and accounting regulations, but also serves as a foundation for process improvement, strengthening internal control systems, and mitigating legal and financial risks. The transparency of a compliance audit report contributes to increased stakeholder confidence and supports the stable and sustainable development of the business.
If your business is looking for a professional, independent audit partner to prepare a highly reliable compliance audit report, based on practical experience and in-depth knowledge of Vietnamese tax law, contact MAN – Master Accountant Network. We are committed to providing comprehensive tax audit and accounting services, helping you not only comply but also optimize operational efficiency within the legal framework. Don't let compliance risks diminish your business value; act today to build a solid foundation for the future.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
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.
