The concept of internal auditing is a core foundation in modern corporate governance, acting as an "early warning system" against financial and operational risks. In the context of Vietnam's increasingly integrated economy, understanding and correctly applying internal auditing standards is not just an option but has become a mandatory requirement. Decree 05/2019/ND-CP of the Government.
According to data from the Institute of Internal Auditors (IIA), organizations that establish robust internal control systems are able to reduce losses due to fraud and accounting errors by up to 40%. A thorough understanding of internal auditing helps managers, chief accountants, and auditors adhere strictly to regulations. Accounting Law 2015 and the guiding circulars of the Ministry of Finance, thereby building a strong financial foundation.
Systematizing the concept of internal auditing and its legal basis in Vietnam.
Before delving into the technical procedures, we need to establish a precise definition of the concept of internal auditing based on both international perspectives and current regulations in Vietnam. This will help businesses avoid misunderstandings between internal control and independent auditing.
Standard definition according to Decree 05/2019/ND-CP
According to Article 4 of Decree 05/2019/ND-CP, the concept of internal audit is understood as the activity of independent and objective examination, evaluation, and consultation on internal control systems, risk management, and governance processes. The ultimate goal is to increase value and improve the operational efficiency of the organization through systematic approaches.
Implementing the concept of internal auditing helps the Board of Directors and the Executive Board assess the effectiveness and efficiency of business processes. Especially for listed companies or state-owned enterprises, this is an indispensable department to ensure transparency before shareholders and tax authorities.
The difference between internal auditing and other forms of inspection.
Many accountants often confuse the concept of internal auditing with routine internal control. In fact, internal auditing stands at the third level in the "Three Lines of Defense" model, overseeing the entire control and risk management system of the two preceding lines.
| Criteria | Internal audit | Independent audit | Internal control |
| Purpose | Management consulting, risk management | Verify the accuracy of the financial statements. | Ensure daily operation |
| Target audience | Executive Board, Board of Directors | Shareholders, Banks, Tax Authorities | All staff |
| Frequency | Continuously or on a planned annual basis | Periodically (annually/semi-annually) | It happens hourly, day after day. |
| Scope | All business activities | Mainly financial indicators | Specific business process |
Key functions and tasks when applying the concept of internal audit
Understanding the concept of internal auditing is the first step, but implementing it requires a deep understanding of accounting and tax practices and international auditing standards (IPPF). Each task is geared towards protecting the assets and reputation of the business.
Check for compliance with laws and internal regulations.
One of the primary tasks of the concept internal audit This ensures that all business operations comply with the Accounting Law, the Tax Law, and guiding circulars such as Circular 200/2014/TT-BTC. This helps businesses avoid legal risks and administrative penalties from authorities.
During compliance audits, internal auditors review accounting documents, tax returns, and expenditure approval processes. The rigorous application of internal auditing principles helps detect errors in accounting for invalid expenses early on, allowing for timely corrections before tax authorities conduct final audits.
Evaluating the effectiveness and efficiency of the operating process.
The concept of internal auditing goes beyond simply examining numbers; it delves into evaluating the "performance" of the organization. Auditors analyze whether resources (human, financial, and asset) are being used optimally and whether there is any waste or loss.
For example, in the procurement process, applying the concept of internal auditing would check for collusion between purchasing staff and suppliers. Any gaps in control would be identified and recommendations for correction would be made to optimize costs for the business.
Why is the concept of internal auditing important in risk management?
Risks are ever-present in every aspect of a business, from market fluctuations to errors in accounting software systems. Internal auditing acts as a "shield" protecting businesses from these fluctuations by identifying and quantifying risks.
Identify key risks.
Through the implementation of the internal audit concept, an organization can build a risk heat map. This allows leaders to focus resources on areas most likely to cause significant damage to the organization, rather than conducting widespread, aimless audits.
Below are the risk groups commonly identified when applying the concept of internal auditing:
- Strategic risks: Deviations from the company's long-term goals.
- Financial risks: Cash loss, bad debts, errors in tax reporting.
- Compliance risks: Violation of specialized legal regulations.
- Operational risks: Equipment breakdowns, strikes, data leaks.
Building a culture of integrity and preventing fraud.
Disseminating the concept of internal auditing to all employees helps create a transparent work environment. When people understand that there is an independent body regularly overseeing the process, the tendency to engage in fraudulent activities will be reduced, contributing to the protection of accounting ethics.
Standard internal audit procedures as per Circular 8/2021/TT-BTC
To realize the concept of internal auditing, the Ministry of Finance issued the Vietnamese Internal Auditing Standards in Circular 8/2021/TT-BTC. A well-structured audit process typically includes the following stages:
Audit Planning
The first stage after mastering the concept of internal auditing is to define the scope, objectives, and necessary resources. The plan must be based on risk assessment, focusing on the departments most likely to experience errors during the accounting period.
Execution
At this stage, auditors will gather evidence through techniques such as observation, interviews, document verification, and software testing. The concept of internal auditing requires meticulous examination of complex accounting entries or related-party transactions as stipulated by the Enterprise Law.
Report and recommendations
All results obtained from the internal audit process must be compiled into an audit report. This report should not only list violations but also provide specific and practical corrective solutions for the Board of Directors.
Follow-up after audit
A key characteristic of internal auditing is its continuity. After a report is issued, the audit department must monitor whether the relevant departments have implemented the recommended improvements to ensure that the system has actually been improved.
Entities required to establish an internal audit department
Not every business is required to have an internal audit department; however, the concept of internal auditing is increasingly encouraged for widespread adoption. According to Articles 8, 9, and 10 of Decree 05/2019/ND-CP, the following entities are required to conduct internal audits:
- Listed companies: A system must be established to protect shareholders' rights.
- State-owned enterprises: It operates on a parent company-subsidiary model.
- Public service units: There is a large total revenue or payroll fund as stipulated.
- Credit and insurance institutions: Due to the sensitive nature of the financial industry.
Failure to comply with the established internal audit system can result in corporate governance penalties under Decree 156/2020/ND-CP in the securities sector.
Challenges in implementing the internal audit concept in Vietnam.
Although the concept of internal auditing offers many benefits, its implementation in Vietnamese businesses still faces numerous obstacles. The shortage of high-quality personnel and insufficient understanding among business owners are the main reasons.
The independence of the audit department
Independence is the "soul" of the internal audit concept. If this department reports directly to the Chief Financial Officer (CFO) instead of the Board of Directors, its oversight power is significantly diminished. Conflicts of interest frequently arise when auditors have to audit their own superiors.
Data quality and technology applications
In the digital age, the concept of internal auditing is closely linked to information systems auditing (IT Audit). If a company's accounting system is inconsistent, extracting data for analysis becomes very difficult, leading to inaccurate audit conclusions.
Conclude
The concept of internal auditing is an integral part of a successful and sustainable business. Understanding and flexibly applying the concept of internal auditing to management practices helps organizations not only comply with current legal regulations but also build strong trust with investors and business partners.
In the context of tightening financial regulations, investing in an internal audit system is an investment in safety and transparency. MAN – Master Accountant Network Ready to accompany you through auditing services and expert advice. Contact MAN today to optimize your organization's operational processes and tax risk control.
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.
Answering frequently asked questions about the concept of internal audit.
Is it legal to outsource internal audit services?
It is perfectly legal. According to Decree 05, businesses can hire professional consulting firms to implement internal audits to ensure objectivity and save on permanent personnel costs.
Do internal auditors need a professional license?
Although the law does not require all employees to have certifications, internal audit managers should possess professional qualifications such as CPA, CIA, or ACCA to ensure they have in-depth knowledge of internal audit concepts and practices.
What is the difference between an internal audit report and financial statements?
Financial statements are accounting products that reflect the situation of assets and capital. Meanwhile, the result of applying the concept of internal auditing is a report assessing the risks and effectiveness of the system, which is more management-oriented.
