Function of internal audit It plays a crucial role as a “third line of defense,” helping organizations protect assets and ensure legal compliance. According to global governance reports, organizations that effectively manage this department can reduce material misstatements and fraud by up to 40%. In Vietnam, Decree 05/2019/ND-CP This has created a legal framework that requires many businesses to establish this system to enhance transparency.
Understanding the function of internal auditing is not only a compliance requirement but also a strategy that helps management gain an objective perspective. In the context of the digital economy and tightening tax regulations, the advisory role of internal auditing is more crucial than ever. We invite readers to join MAN – Master Accountant Network in a detailed analysis of professional aspects, from financial control to operational improvement, below.
The concept and professional nature of internal auditing.
Internal auditing is an independent, objective assurance and advisory activity aimed at adding value to an organization. According to the International Institute of Internal Auditors (IIA), it helps organizations achieve their goals by applying a systems approach to evaluating risk management processes. This activity goes beyond simply checking; it focuses on improving operational efficiency.
In Vietnam, the functions of internal audit are specifically defined as follows: Accounting Law 2015 and Decree 05/2019/ND-CP. This is the legal basis for determining the responsibilities of auditors in state agencies and listed companies. The presence of this department affirms the company's commitment to integrity and accountability to shareholders.
Many managers often confuse the functions of internal audit and internal control systems. Internal control refers to the processes established by the Board of Directors for daily operations. Internal audit, on the other hand, assesses whether those processes are functioning effectively. This function is a high-level oversight, operating outside of operational activities to ensure objectivity.
The functions of internal auditing in modern businesses.
The function of internal auditing today extends far beyond simply examining accounting records. It encompasses a full range of activities, from strategic evaluation to comprehensive operational process compliance reviews.
The function of checking and verifying the reliability of financial reports.
Internal audit reviews transactions, ensuring that accounting records comply with VAS or IFRS standards. The function of internal audit here is to prevent errors that distort the financial picture. This provides investors and management with accurate data to make important business decisions.
| Review index | The objectives of the internal audit function. | Legal basis |
| Accuracy | Ensure that the figures in the ledger match the original documents. | Circular 200/2014/TT-BTC |
| Timeliness | Verify that accounting entries are made in the correct period and that revenue is not accumulated. | Accounting Standard No. 01 |
| Tax compliance | Review tax settlement records for corporate income tax, personal income tax, and value-added tax. | Tax Administration Law 2019 |
Function of evaluating the risk management system
In a volatile environment, the risk management function of internal audit is vital. Auditors identify market, credit, and legal risks. By analyzing probabilities and the extent of impact, internal audit helps businesses establish technical barriers to mitigate financial losses.
The function of protecting the assets and resources of the enterprise.
The functions of internal auditing include monitoring the management of fixed assets, inventory, and intangible resources. Conducting periodic inventory checks and reviewing procurement processes helps prevent personal gain. This ensures that company resources are used appropriately and efficiently.
Functions include improving operating systems and providing management consulting.
This is the function that brings the greatest added value. After identifying weaknesses, the function of internal auditing is to make specific recommendations for improvement. For example, auditors can advise on applying automation technology in debt collection to optimize cash flow. These suggestions help businesses streamline their operations and increase labor productivity.
The strategic role of internal audit for the Board of Directors
Beyond its technical aspects, the function of internal auditing is demonstrated through its role as an "extended arm" of the Board of Directors. It provides independent information on the operational efficiency of the Management Board. At the same time, it helps leaders feel more confident about the compliance of subordinate departments within the system.
Internal auditing also strengthens trust with stakeholders such as banks or tax authorities. It plays a central role in maintaining business ethics within an organization. When employees are aware of fair oversight, a culture of compliance will be formed and developed sustainably.
Mandatory principles to ensure the effectiveness of internal audit
To properly perform its functions, internal audit must adhere to the four principles outlined in Article 4 of Decree 05/2019/ND-CP:
- Independence: Auditors are not allowed to take on professional work within the department they audit to avoid conflicts of interest.
- Objectivity: All evaluations must be based on factual evidence, free from bias or personal influence.
- Professionalism: Auditors need appropriate qualifications (CPA, CIA, etc.) and a deep understanding of law and accounting.
- Security: Never disclose sensitive information unless officially requested by law enforcement agencies.
International standard procedures for performing internal audit functions.
The process for performing internal audit functions needs to be standardized through rigorous steps to achieve maximum effectiveness:
- Step 1: Make a plan. Prioritize high-risk areas such as purchasing, warehousing, or payments.
- Step 2: On-site audit. Gather evidence through interviews and on-site record checks at the organization.
- Step 3: Prepare the report. Clearly state the risk findings and make recommendations for appropriate process modifications.
- Step 4: Follow up on the proposal. Monitor the remediation process to ensure that vulnerabilities have been completely closed.
Challenges in implementing internal audit functions in Vietnam
In practice, the implementation of internal audit functions in Vietnam still faces many obstacles. Some businesses only establish this department to comply with legal regulations. The lack of human resources with in-depth experience in risk management also limits the strategic consulting function, failing to deliver real value.
Cost barriers are also a major issue for small and medium-sized enterprises (SMEs). Maintaining an in-house workforce is costly in terms of training and compensation. Therefore, outsourcing is a viable option. auditing services Internalization is currently the optimal solution to ensure professionalism and save money for businesses.
Conclude
Internal auditing functions as an essential "immune system" protecting a business's health against all kinds of fluctuations. Proper investment in this function provides peace of mind for owners and ensures that capital is used efficiently. In the digital age, internal auditing will increasingly integrate with data technology to predict risks more accurately and promptly.
Understanding the challenges of running this department, MAN – Master Accountant Network provides a solution. internal audit services Comprehensive. With a team of experts knowledgeable in international law and standards, we help businesses realize the most professional internal audit functions. Let MAN be your partner in protecting the prosperity and sustainability of your business today!
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 Function of Internal Audit
Which businesses are required to have internal audits?
According to Decree 05/2019/ND-CP, listed companies and state-owned enterprises with capital exceeding 50% are required to implement this function.
How does internal auditing differ from independent auditing?
Independent audits focus on annual financial statements for third parties. Internal audits, on the other hand, have an ongoing function, focusing on risk management for internal use.
How can you tell if your internal audit is working effectively?
Effectiveness is measured by the number of risks prevented, the rate of recommendations implemented, and the reduction in errors in the accounting and tax system.
