A financial statement audit contract is the most important legal agreement between a business (the audited entity) and the auditing firm. Law on Independent Auditing No. 67/2011/QH12Therefore, establishing this contract is not only an administrative procedure but also a legal basis for determining the responsibilities, scope, and authority of the parties involved in the audit process.
In the context of increasingly stringent tax management and financial transparency in Vietnam, financial statement audit contracts act as a "shield" protecting businesses from material misstatements. Statistics from the General Department of Taxation show that many entities have implemented such contracts. independent audit This typically reduces the risk of being penalized for accounting and tax violations during audits by up to 85%.
Legal basis for performing the financial statement audit contract.
The signing of financial statement audit contracts must be based on the strict legal framework of the Vietnamese legal system. This ensures objectivity and protects the rights of all parties involved, especially those entities subject to mandatory audits as stipulated in Article 37 of the Independent Auditing Law 2011.
The relevant legal documents directly governing this include the Law on Independent Auditing, Decree 17/2012/ND-CP, and the Vietnamese Auditing Standards (VSA). In particular, VSA 210 clearly stipulates the "Agreement on the Terms of the Audit Contract," requiring the parties to agree on the objectives, scope, and reporting responsibilities.
The entities required to sign a financial statement audit contract are:
According to current regulations, the following types of businesses are required to have their financial statements audited annually:
| Business type | Legal basis | Note |
| Foreign direct investment (FDI) enterprises | Clause 1, Article 37 of the Law on Economic and Technical Regulations | Required 100% |
| Credit institutions, financial institutions | Law on Credit Institutions | Periodic audits |
| State-owned enterprises (SOEs) | Decree 17/2012/ND-CP | By capital size |
| Public, listed company | Securities Law | Auditing and Review |
Delays or failure to sign financial statement audit contracts with these entities may result in fines ranging from VND 40,000,000 to VND 50,000,000 according to Decree 41/2018/ND-CP on administrative penalties in the field of accounting and independent auditing.
The basic content of a standard financial statement audit contract.
A sample contract audit of financial statements Standards should not only include information from both parties but also detail the implementation process. This helps prevent disputes from arising when there are changes in the scale of data or the time frame for providing business documents.
Typically, the content will be divided into sections: Audit objectives; Audit scope; Responsibilities of the Board of Directors; Responsibilities of the Auditor; Reporting format; and Deadline. Transparency in these terms helps make the financial statement audit contract an effective risk management tool for both parties.
Objectives and scope of the financial statement audit contract.
The primary objective of an audit is to provide an opinion on the fairness and integrity of the financial statements in all material respects. The scope of an audit typically includes examining the following reports: the balance sheet, the income statement, the cash flow statement, and the notes to the financial statements. financial reports.
When discussing the scope of a financial statement audit contract, businesses need to clearly define the inventory locations, branches, or subsidiaries that need to be reviewed. This directly impacts the timeframe and the personnel the audit firm will deploy.
Responsibilities of the parties involved
The company's management is responsible for preparing and presenting financial statements in accordance with current accounting standards and regulations. Meanwhile, auditors are responsible for performing control procedures to obtain sufficient and appropriate audit evidence as agreed upon in the financial statement audit contract.
Many businesses mistakenly believe that after signing a financial statement audit contract, the auditor is solely responsible for any errors. In reality, the responsibility for establishing and maintaining internal controls to prevent fraud and errors still rests with the management of the audited entity.
The process of signing and executing a financial statement audit contract.
The process from initial survey to completion of a financial statement audit typically involves four main stages. Adherence to this process ensures that the services provided are of the highest quality and adhere to professional ethics.
First, the auditing firm will send a quotation based on a preliminary understanding of the client's scale of operations, industry, and internal control system. After agreeing on the service fee, both parties will draft and formally sign the financial statement audit contract.
Detailed steps
- Customer survey: Understand business risks and control risks.
- Audit planning: Determine the materiality level and sampling method.
- Conduct on-site audits: Witnessing the inventory and comparing records.
- Release the report: Prepare audit reports and management letters.
During the on-site execution phase, the validity of the financial statement audit contract is demonstrated by the company's provision of complete original documents and accounting records. Close coordination between the accounting department and the audit team is key to completing the work on schedule as committed.
The ideal time to sign a financial statement audit contract.
Most of FDI enterprises Contracts are typically signed in the fourth quarter of each year. Signing the financial statement audit contract early allows the auditing firm time to participate in and witness the inventory count and fixed asset inventory by December 31st, thereby increasing the reliability of the audit opinion.
Service fees and components of a financial statement audit contract.
Service fees This is one of the most important aspects to consider when negotiating a financial statement audit contract. This fee is not determined arbitrarily but is based on an estimated number of working hours for the personnel involved and the complexity of the economic transactions at the entity.
According to market practices in Vietnam, audit fees typically vary depending on a company's total assets, revenue, and number of employees. Below is a reference table of average fees for financial statement audit services for small and medium-sized enterprises:
| Revenue size (Billion VND) | Estimated audit fee (Million VND) | Execution time (Days) |
| < 50 | 25 – 40 | 3 – 5 |
| 50 – 200 | 40 – 70 | 5 – 10 |
| 200 – 500 | 70 – 120 | 10 – 15 |
| approximately 500 | Agree | > 15 |
Note that the fees stipulated in the financial statement audit contract may or may not include VAT and travel expenses (travel and accommodation for the auditor). Businesses need to clarify this clause to avoid unexpected costs.
The risks of not signing a financial statement audit contract on time.
Missing the deadline for signing a financial statement audit contract not only leads to legal risks but also directly affects the company's reputation with stakeholders such as banks, investors, and tax authorities.
Tax authorities generally consider audited financial statements to be a reliable document for assessing compliance. If a business does not have a financial statement audit contract and fails to submit the audit report on time, its tax records will be classified as high-risk, potentially leading to a longer and more stringent tax audit.
For entities seeking bank loans, an audit report is a mandatory document in the credit application process. Without independent third-party confirmation through a financial statement audit contract, banks have the right to refuse disbursement or apply higher interest rates due to the risk of opaque financial information.
Furthermore, in mergers and acquisitions (M&A) transactions, the buyer always requires the seller to provide audit reports on the financial statements for at least the three most recent years. This demonstrates professionalism and transparency in corporate governance, helping to increase the company's valuation.
Special clauses to note in financial statement audit contracts.
In addition to standard clauses, several specific aspects of financial statement audit contracts require careful consideration, such as: confidentiality clauses, limitations of liability, and dispute resolution.
Confidentiality clauses require auditing firms not to disclose clients' business information to third parties unless consent is obtained or required by law. This is a crucial commitment to protecting business secrets when a firm signs a financial statement audit contract.
Management Letter
Many businesses often forget to request a management letter in their financial statement audit contracts. A management letter is a document in which the auditor makes recommendations for improving internal control systems and accounting processes. This is a huge added value that helps businesses improve their management structure.
The use of audit results
The purpose for which the report is intended should also be clearly stated in the financial statement audit contract. For example, if the report is intended for listing on a foreign stock exchange, the applicable auditing standards (such as...) should be specified. ISA (or IFRS) will differ from Vietnamese standards, thus requiring higher qualifications for auditors.
Conclude
A financial statement audit contract is not simply a compliance procedure, but a crucial stepping stone for businesses to affirm their transparency and credibility in the market. Choosing a reputable partner to perform the financial statement audit will help businesses save time, optimize tax benefits, and build a solid financial foundation for the future.
With a network of highly experienced professionals, MAN – Master Accountant Network proudly stands as a leading provider of high-quality auditing services. We are committed not only to fulfilling all contractual terms but also to delivering on our promises. financial statement auditing services Furthermore, it provides superior strategic consulting services, helping businesses operate with peace of mind and achieve sustainable growth.
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
Other services
- Auditing: Auditing Services, Construction Auditing Services, Financial statement audit services
- Accounting and Taxation: Tax accounting services, Tax report, Transfer Pricing Advisory. Tax Accounting Services, Tax reporting services, Transfer Pricing Service, Affiliate Trading Service
- Legal aspects: Work permit services, Business registration certification services, Investment Certificate
- Other: Transfer Pricing Service, Affiliate Trading Service, Business Operations Consulting Services
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 Financial Statement Audit Contracts
Do newly established businesses (FDI) have to sign a financial statement audit contract in their first year?
Yes. According to regulations in Vietnam, FDI enterprises are required to have their financial statements audited annually, including the first year of establishment, if they have commenced operations or meet the legal requirements.
Does the fee in a financial statement audit contract include tax advisory fees?
Typically, audit fees only cover the issuance of an opinion on financial statements. However, at MAN, we often incorporate tax recommendations into the management letter attached to the financial statement audit contract to best support our clients.
Is it permissible to change auditing firms and sign an annual contract to audit financial statements with a new entity?
Businesses have every right to change their auditing firm to ensure objectivity. However, maintaining a partner who understands your system well for 2-3 years often results in higher work efficiency.
What is the deadline for submitting the report after signing the financial statement audit contract?
For FDI enterprises, the deadline for submitting audited financial statements is 90 days from the end of the fiscal year (usually before March 31st each year).
