The internal audit department plays an indispensable role as the "third line of defense" in the internal control system of any modern business. According to regulations... Decree 05/2019/ND-CPEstablishing this function is not only a mandatory legal compliance requirement for listed companies but also an optimal solution for protecting assets.
In Vietnam, the increasing risk of tax evasion and financial misconduct demonstrates that this sector... internal audit It is the most effective tool for early detection of management loopholes. A robust system helps businesses confidently face audits, optimize accounting processes, and build trust with investors. Let's explore the operational roadmap for this department below.
The importance of internal audit departments in the current legal context.
In the context of increasingly stringent legal systems regarding accounting, taxation, and corporate governance, internal audit departments are no longer an optional choice but have become a mandatory legal requirement for many types of organizations. With their role in independent evaluation... internal control systemIn terms of risk management and compliance, this department contributes to ensuring financial transparency, improving operational efficiency, and minimizing the risk of administrative penalties.
Definition and core role
The internal audit department is understood as a unit responsible for conducting independent audits and assessments of the internal control system and risk management. Their role extends beyond simply detecting fraud; they also advise the management team on sustainable business process improvement strategies.
In organizational structures, the internal audit department typically reports directly to the Audit Committee or the Board of Directors to ensure independence. The presence of this department helps to make financial information more transparent, minimizes agency costs, and reduces the risk of administrative penalties due to accounting and tax errors.
Legal basis for establishing the obligation to set up an internal audit department.
Currently, the government has issued a clear legal framework to align with international standards. The establishment of an internal audit department must be based on the following key legal documents:
| Legal documents | Main target groups | Key content |
| Decree 05/2019/ND-CP | Listed companies, state-owned enterprises, public service units | Mandatory regulations regarding internal auditing. |
| Circular 66/2020/TT-BTC | Units subject to Decree 05 | Model regulations and standards for conducting audits |
| Accounting Law 2015 | All accounting units | General principles of internal control and auditing |
| Tax Administration Law 2019 | Taxpayers | The role of internal control in tax compliance |
Based on these regulations, internal auditing has become a strict legal requirement rather than a voluntary option. Non-compliance can lead to penalties under the regulations on administrative sanctions in the field of accounting and independent auditing.
Requirements and standards for internal audit department personnel.
For internal audit departments to truly fulfill their role of monitoring and strategic advice, the key factor lies in the quality of their personnel. Current legislation not only requires professional qualifications but also emphasizes ethical standards and independence in performing their duties. Meeting these standards is fundamental to ensuring the objectivity, transparency, and value of internal audit activities within a business.
Ethical standards and professional qualifications
Personnel working in the internal audit department need to possess expertise in accounting, auditing, and a thorough understanding of tax law. According to Article 11 of Decree 05/2019/ND-CP, internal auditors must have a university degree or higher in relevant fields such as Finance, Accounting, Auditing, or Law.
Beyond qualifications, internal audit personnel must maintain absolute integrity and confidentiality. They need critical thinking skills to assess potential risks in the operational processes of various departments, thereby providing practical and valuable recommendations to senior management.
Independence and objectivity – A vital principle.
Independence is a prerequisite for the effective functioning of an internal audit department. Internal auditors cannot hold direct management positions in the departments they audit. For example, a general accountant cannot simultaneously be a member of the internal audit department performing the audit of their own area of expertise.
Objectivity enables internal audit departments to make unbiased assessments based on verifiable evidence. When independence is threatened, the value of audit reports is severely diminished, directly impacting the strategic decisions of the Board of Directors and stakeholders.
The operational procedures of a professional internal audit department.
A professional internal audit department relies not only on competent personnel but also on a well-structured, consistent, and controllable operational process. From planning and execution to reporting and follow-up on recommendations, every step must adhere to principles based on risk assessment and verifiable evidence. A rigorous process is the foundation upon which internal audit activities create tangible value for the business.
Audit planning based on risk assessment.
Annually, the internal audit department must develop a plan for approval by the competent authority. This plan must be based on the results of a risk assessment of each business process. High-risk areas such as procurement, sales, or tax settlement are usually prioritized for audit.
Detailed planning helps the internal audit department allocate resources appropriately, ensuring comprehensive coverage of material risks. This is a crucial step in ensuring that audit activities proceed on schedule and achieve the set objectives in terms of governance control and financial safety.
Conduct audits and gather evidence.
During the audit phase, internal audit team members utilize observation, interviews, and document verification techniques. The goal is to verify whether accounting procedures comply with internal regulations and tax laws, thereby ensuring data accuracy.
Audit evidence must be fully documented in the internal audit department's records. This evidence serves as the legal basis for defending the findings and recommendations in the final report, and also facilitates re-examination by government regulatory agencies when required.
Prepare reports and monitor the implementation of recommendations.
The final product is the internal audit report. The internal audit department is responsible for presenting clear findings, assessing the severity, and proposing feasible corrective actions. This helps management understand the operational status and identify gaps that need addressing.
After the report is issued, the internal audit department must monitor the implementation of the recommendations by the audited entity. This process ensures that the identified gaps are actually filled, helping to make the company's risk management system more complete and robust.
The relationship between internal audit and accounting/tax work.
In corporate governance, the relationship between internal audit and accounting/tax departments is complementary and closely supervisory. While accounting is responsible for recording and reporting, internal audit plays a role in reviewing and evaluating compliance and process efficiency. This collaboration helps businesses proactively prevent legal risks, optimize operations, and enhance the reliability of financial information.
Monitoring tax compliance
The internal audit department plays a crucial oversight role in complex tax matters such as corporate income tax, value-added tax, and personal income tax. Through regular audits, the department helps review tax returns and settlement documents, thereby avoiding risks of tax arrears or late payment penalties from the tax authorities.
The collaboration between accounting and internal audit departments creates a strong self-monitoring mechanism. When errors are corrected promptly from within, businesses will always be proactive when dealing with regulatory authorities, helping to save costs and protect brand reputation in the market.
Optimizing financial accounting processes
A good internal audit department not only finds errors but also suggests ways to streamline processes. The application of technology in transaction recording can be recommended by this department to minimize human error and speed up the preparation of monthly and quarterly financial reports.
| Characteristic | Independent audit | Internal Audit Department |
| Purpose | Verify the accuracy of financial statements. | Improve risk management |
| Report to | Shareholders, third parties | Board of Directors, Supervisory Board |
| Scope | Financial data | The entire operating process |
| Periodicity | Annually | Regularly, continuously |
Thus, the internal audit department is the most loyal "guardian," always accompanying the business in all its daily production and business activities in the most objective way possible.
Common challenges when building an internal audit department.
While offering significant value in risk management and legal compliance, establishing an internal audit department is far from simple. Businesses often face pressure regarding highly skilled personnel, operating costs, and the challenge of balancing long-term efficiency. Without a proper strategy, this department can easily become merely a formality, failing to fulfill its role in control and strategic advice.
Barriers related to the availability of highly skilled human resources.
Maintaining a competent internal audit department is a major challenge for Vietnamese businesses. Personnel need not only strong accounting skills but also excellent communication abilities to coordinate with other departments without causing conflict or psychological stress.
Many organizations struggle to train successors for their internal audit departments. This leads to departments that operate formally, reporting in depth and failing to identify strategic risks critical to the organization's growth.
Operating costs and efficiency
Maintaining a dedicated internal audit department requires a significant budget for salaries, training, and technology. For smaller businesses, establishing such a department can sometimes create financial pressure, while its effectiveness cannot be immediately measured in terms of pure profit.
This is why the trend of outsourcing or collaborating with professional firms like MAN – Master Accountant Network to support the operation of internal audit departments is becoming increasingly popular. This solution helps optimize costs while still ensuring audit quality according to international standards.
Steps to setting up an internal audit department from scratch.
Building a high-quality internal audit department requires following this systematic roadmap:
- Approve the Regulations: The internal audit regulations are issued based on Circular 66/2020/TT-BTC. This is the highest legal framework for all activities of the department.
- Personnel appointments: Recruiting department heads and auditors who meet the ethical and professional standards as stipulated in Decree 05.
- Develop a methodology: Establish a standardized audit manual and risk assessment form for the internal audit department to be applied consistently.
- Investing in technology: Using data analysis software helps the internal audit department examine 100% data instead of relying solely on manual sampling as before.
- Internal communications: Organizing workshops helps departments understand the supportive role of the internal audit department, avoiding a reactive attitude when being audited.
Conclude
An internal audit department is a solid foundation for a business's sustainable growth in the face of legal uncertainties and risks. Proper investment in this function helps protect assets, improve operational efficiency, and enhance the company's reputation in the fiercely competitive financial market.
Understanding the challenges faced by businesses, MAN – Master Accountant Network provides professional internal audit consulting and implementation services. With a team deeply knowledgeable in tax law and international standards, we are committed to delivering practical solutions, allowing you to focus on your core business with peace of mind.
Other services
- Financial statement audit services
- Internal audit services
- Internal Control System Assessment Service
- Auditing services on request
- Professional tax audit services
- Construction auditing services
- Completed project settlement audit service
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.
Frequently Asked Questions about the Internal Audit Department
Is it mandatory for private businesses to establish an internal audit department?
According to Decree 05, listed companies or state-owned enterprises (SOEs) on the 50% list are required to establish internal audit departments. For other private enterprises, the State encourages the establishment of internal audit departments to improve governance, but this is not currently legally mandated.
Does the internal audit department have the authority to discipline employees?
No. The internal audit department's function is solely to detect, assess, and make recommendations. The authority to decide on disciplinary action rests with the Executive Board, based on reports and evidence provided transparently by this department.
Is it possible to outsource the functions of the internal audit department?
Absolutely. The law allows businesses to hire professional consulting firms to perform this service. This helps ensure the highest level of objectivity and gives the internal audit department access to a team of experienced experts.
