object of audit of financial statements These are units, organizations, or individuals that have financial reports Audits are conducted to verify the accuracy and reasonableness of financial data. In the context of Vietnam's deep integration into the global economy, correctly identifying the audited entity not only helps auditing firms adhere to proper procedures but also enables state management agencies to transparently control social financial resources.
According to statistics from the Ministry of Finance, the number of businesses subject to mandatory annual financial statement audits has increased sharply, especially the group... foreign direct investment (FDI) enterprises and public companies. A thorough understanding of the subjects of financial statement audits helps business managers be more proactive in fulfilling their legal obligations. Law on Independent Auditing No. 67/2011/QH12 and related guiding circulars. Let's explore the details with MAN – Master Accountant Network in the article below.
The concept of the subject of financial statement auditing in the accounting system.
To understand the subject matter of financial statement auditing, we first need to clearly distinguish between the "subject" and the "object" of the audit. These two concepts are often confused in practice by new accountants or managers.
The subject of financial statement auditing is the specific economic entity where the audit is conducted. This could be an independent legal entity such as a business, a public service unit, an investment project, or even an internal department within a corporation.
Meanwhile, the subject of auditing is the financial situation, the figures and information presented on the balance sheet and income statement. Correctly identifying the subject of financial statement auditing helps the auditor determine the control environment and potential risks specific to that industry.
Classification of subjects of financial statement audits according to current regulations.
The classification of the subjects of financial statement audits is usually based on two main criteria: legal nature (mandatory or voluntary) and the type of entity performing the audit (state-owned, independent, or internal).
Classification according to the legal nature of the audit.
Based on the Law on Independent Auditing and its subordinate regulations, the subjects of financial statement audits are divided into two distinct groups to ensure both legal enforcement and market needs.
Mandatory audit subjects
This is a group of entities whose annual financial statements are legally required to be audited by an independent auditing firm. Failure to comply may result in serious administrative penalties for the entities whose financial statements are audited within this group.
Voluntary audit subjects
Conversely, this group includes small and medium-sized enterprises, household businesses, or organizations not on the mandatory list but proactively hiring auditors. Becoming a subject of voluntary financial statement audits helps these entities increase their credibility with banks and investors.
The subject matter corresponds to each type of audit entity.
Each type of auditing entity will have a different scope of audit subjects for financial statements, as specifically defined by the State Audit Law or the operating regulations of the enterprise.
| Type of audit | Typical subjects of financial statement audits | Main objective |
| State Audit Office | Administrative agencies, public service units, state-owned enterprises, and projects funded by the state budget. | Inspect the management and use of public finances and public assets. |
| Independent Audit | Foreign direct investment (FDI) enterprises, public companies, credit institutions, investment funds. | Confirmation of accuracy and reasonableness for third parties (shareholders, creditors). |
| Internal Audit | Departments, branches, and projects within a corporation/enterprise. | Evaluate the effectiveness of the internal control system. |
The role of the audit subjects of financial statements in the economy.
The entity auditing financial statements acts as a "link" providing raw data for the assessment process. The cooperation of the entity determines the success of a professional audit.
For tax authorities, identifying the subjects of financial statement audits helps pinpoint entities with a high risk of financial irregularities. This optimizes audit resources and ensures fairness in budget contribution obligations.
Furthermore, when an entity becomes the subject of a financial statement audit, it is compelled to standardize its documentation and accounting systems. This implicitly creates a higher standard of governance for the entire Vietnamese financial market.
The entities subject to mandatory financial statement audits are those specified in Decree 17/2012/ND-CP.
Decree 17/2012/ND-CP The guidelines for the Independent Auditing Law clearly specify the list of entities required to conduct annual financial statement audits. This is crucial information that every chief accountant needs to understand.
Foreign direct investment (FDI) enterprises
All FDI enterprises, regardless of capital size or industry, are subject to mandatory financial statement audits. This regulation aims to control transfer pricing and increase transparency in international investment flows.
Credit institutions and financial institutions
Banks, insurance companies, and finance companies are among the most important entities for financial statement audits. Due to their specific nature involving public deposits, their financial statements require rigorous scrutiny to avoid systemic risk.
Public companies and listed organizations
To protect the interests of minority shareholders, companies listed on the stock exchanges (HOSE, HNX) are required to undergo financial statement audits. The transparency of these entities is fundamental to the development of the capital market.
The process of identifying and approaching the subject of financial statement audits.
Before beginning an audit, auditors need to conduct a preliminary assessment to gain a thorough understanding of the audited financial statements. This process includes evaluating business risks and control risks.
First, the auditing firm will send a cover letter or profile to the potential financial statement audit client. After agreeing on the terms regarding fees and scope, the two parties will sign an audit contract – a legally binding document outlining the responsibilities of both the client and the auditing firm.
During the audit phase, the entity undergoing a financial statement audit is responsible for providing complete documentation, explaining any transactions that have occurred, and facilitating the auditor's witnessing of the physical inventory of assets.
Common errors made by the subjects of financial statement audits.
Based on practical experience from MAN – Master Accountant Network, many financial statement audit subjects often make systemic errors in the data preparation process.
Firstly, there are errors in recognizing revenue in the wrong accounting period. Many entities audited in financial statements intentionally shift revenue to the following year or pull it back to the previous year to adjust profits as desired, which violates the accrual basis principle.
Secondly, there is the failure to adequately provision for doubtful receivables or inventory devaluation. When subject to a financial statement audit, the entity needs to present information cautiously so that it is not considered "material misrepresentation".
| Risk area | Detailed description | Impact on financial statements |
| Inventory | The difference between the records and the actual inventory. | Difference between cost of goods sold and gross profit. |
| Fixed assets | Depreciation rates are not in accordance with the regulations stipulated in Circular 45/2013/TT-BTC. | Management costs fluctuated erratically, either rising or falling. |
| Loans | Failure to properly account for interest expense or incorrect capitalization. | This directly impacts cash flow and corporate income tax. |
The subject of financial statement audits in relation to the Tax authorities.
It's important to note that having audited financial statements doesn't mean the entity is immune to tax audits. However, if it's the subject of a reputable financial statement audit, the probability of having its figures adjusted during tax settlement will be significantly lower.
The errors discovered by auditors in the audited financial statements often relate to non-deductible expenses. Timely correction of these errors helps businesses avoid late payment penalties of up to 0.031 TP3T/day.
Therefore, businesses should view becoming the subject of a financial statement audit as a crucial "rehearsal" before working with regulatory authorities, helping to minimize legal risks.
The importance of selecting an auditing firm for the client.
For a financial statement audit subject, choosing the right audit partner is extremely important. A competent audit firm not only provides an honest opinion but also advises the client on solutions to optimize its accounting system.
Particularly for financial statement audits targeting FDI enterprises or large companies, the auditing firm needs a team of experts with in-depth knowledge of both International Financial Reporting Standards (IFRS) and Vietnamese Accounting Standards (VAS).
Having complete documentation when being the subject of a financial statement audit will help shorten the direct work time, thereby minimizing costs and avoiding disruption to the unit's daily business operations.
Conclude
The entity being audited plays a central role in maintaining the transparency and reliability of financial information in the market. Understanding one's position, responsibilities, and rights as an entity helps businesses not only comply with the law but also build a solid reputation with partners and regulatory bodies. In a volatile business environment, proactively conducting audits is a shield protecting businesses from potential financial risks.
If you are looking for a reliable partner to perform professional audit procedures, contact MAN – Master Accountant Network today. We pride ourselves on being a leading network of accounting, auditing, and tax experts, ready to support all financial statement audit clients from data preparation to final report issuance. With financial statement auditing services With dedication and a deep understanding of Vietnamese law, MAN is committed to delivering tangible value, helping businesses optimize processes and confidently pursue sustainable development.
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
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- Auditing services on request
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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.
Answering questions about the subject matter of financial statement audits.
Are private enterprises required to be subject to financial statement audits?
According to current regulations, private enterprises are not subject to mandatory auditing unless they participate in bidding for projects requiring auditing or need to borrow large amounts of bank capital.
How are the costs of being the subject of a financial statement audit calculated?
Audit fees typically depend on the size of total assets, revenue, number of transactions, and the complexity of the internal control system of the entity whose financial statements are being audited.
Does the entity have the right to change the auditing firm midway through the audit?
Yes, however, any changes to the audit scope of financial statements for listed companies must be publicly announced and have a valid reason to avoid raising suspicion among investors.
