Auditing business management expenses is a mandatory step in auditing financial statements. Accounting Law 2015 and Circular 200/2014/TT-BTCThis is because this item is directly reflected in account 642 and impacts taxable income. For many manufacturing and trading businesses in Vietnam, administrative expenses can account for 5 to 10% of revenue, with many expenses being misaccounted for or lacking valid documentation. When the tax authorities conduct an audit, these errors can easily lead to tax arrears and penalties.
Many CEOs and CFOs are noticing escalating operating costs but haven't identified the cause – whether it's waste, losses, or accounting errors. This article presents the definition, standard audit procedures, and common risks, based on years of experience in tax, accounting, and auditing consulting in the Vietnamese market by MAN – Master Accountant Network.
| Auditing business management expenses is the process of examining and verifying the authenticity, reasonableness, validity, and timeliness of expenses reflected in account 642. |
| Purpose: To detect accounting errors, waste, and losses, thereby helping businesses optimize operating costs and reduce risks during tax settlement. |
| Applicable to: businesses of all types, especially those where administrative expenses are increasing faster than revenue. |
| When to perform this check: periodically annually, before tax settlement, or when unusual activity is detected in operating expenses. |
| Legal basis: Accounting Law 2015, Circular 200/2014/TT-BTC, Vietnam Auditing Standards (VSA). |
What is a business management cost audit and why is it necessary?
According to the 2015 Accounting Law and Circular 200/2014/TT-BTC, business management expenses are all expenditures serving the general operation, management, and administration of the enterprise, recorded in account 642. Auditing business management expenses is the activity of checking, comparing, and evaluating the accuracy and reasonableness of these expenses on the financial statements. This is an important part of the audit because management expenses are a direct indicator that reduces the taxable income of the enterprise.
What are the costs included in business management expenses?
Account 642 is detailed into 8 sub-accounts, each tracking a separate group of expenses for management purposes.
| Small account | Content of the report |
| 6421 | Salary and related management personnel costs |
| 6422 | Material costs for management purposes. |
| 6423 | Costs of stationery, tools, and administrative equipment. |
| 6424 | Depreciation expense of fixed assets used for administration. |
| 6425 | Taxes, fees, and charges are non-refundable. |
| 6426 | Risk provision expenses |
| 6427 | Costs of outsourced operational services. |
| 6428 | Other cash expenses not included in the above category. |
Why do business management expenses need to be audited periodically?
Administrative expenses are general expenses and are therefore easily confused with sales expenses or the personal expenses of managers. Auditing business administrative expenses helps to clearly separate each item, determining which expenses are reasonable and which should be excluded when calculating corporate income tax. For CEOs and CFOs, this is also a tool to measure the efficiency of resource utilization and detect early signs of waste before it affects profits.
What risks do businesses face if they skip auditing their administrative expenses?
Failure to conduct regular audits of business management expenses leads to the accumulation of errors over several periods, resulting in more serious consequences during tax audits. The four most common risks include:
- Invalid expense accounting: lack of invoices, supporting documents, or approval signatures, resulting in the expense being disallowed as a deductible expense when calculating corporate income tax.
- Mixing personal expenses with company expenses: private cars and personal phones of executives are included in administrative expenses without separating their purposes.
- Incorrect allocation of expenses: prepaid expenses or provisions are not allocated according to the accrual accounting principles.
- Lack of internal spending regulations: there are no written regulations specifying spending limits or approval authority, making it difficult to explain expenses to the tax authorities.
Legally, these errors can lead to the recovery of corporate income tax, additional late payment penalties, and administrative fines as stipulated in tax management regulations. Financially, the increased management costs due to waste will directly erode net profits each year.
See more articles at: Top 10 Reputable and Professional Auditing Service Companies in Ho Chi Minh City
What are the signs that indicate a business needs an audit of its administrative expenses immediately?
Not all businesses need to wait until the mandatory audit period to review this item. Several signs indicate that an audit of business management expenses should be conducted sooner than planned:
- Administrative expenses have increased faster than revenue growth for two consecutive periods.
- The ratio of administrative expenses to revenue far exceeds the average for businesses in the same industry.
- The company has recently changed its chief accountant or its accounting software system.
- Businesses preparing to raise capital, merge, or change their business structure need to provide transparent financial reports.
In the above situations, auditing business management expenses should not be delayed, because the longer errors are left unaddressed, the more difficult it becomes to trace the original documents and the more difficult it is to explain them when requested by the tax authorities.
What are the steps involved in the business management expense audit process?
A well-structured business management cost audit process is typically implemented in three main steps, ensuring both technical completeness and feasibility within a short timeframe.
Step 1: Planning and preliminary survey
Auditors investigate the industry, size, organizational structure, and internal control systems of the business. Simultaneously, management expense data is compared across periods, against budget plans and the general standards of businesses in the same industry, to identify items with unusual fluctuations.
Step 2: Perform a detailed inspection.
This is the core phase of a business management cost audit, and includes the following specific procedures:
- Compare each expenditure item with the invoice, payment voucher, service contract, and time sheet.
- Check for correct period: expenses incurred in a given month must be recorded in the same month they are incurred.
- Verify that the depreciation of fixed assets used by the management department is being calculated according to the registered timeframe and method.
- Review internal spending regulations and the approval authority of each management level.
- Interview the accounting and administrative departments to clarify the nature of large or unusual expenditures.
Step 3: Summarize the results and make recommendations.
The auditor compiles all the collected evidence, requests further explanations from the company if necessary, and then issues a report outlining the errors, unreasonable expenses, and proposed adjustments. This report also serves as the basis for the company to refine its internal control regulations for subsequent periods.
A high-quality business management expense audit report not only lists errors but also categorizes the impact of each error on financial statements and tax obligations. This allows management to prioritize addressing material issues first, rather than spreading resources thinly across smaller expenses.
How does MAN – Master Accountant Network conduct audits of business management expenses?
With a team of experts boasting over 30 years of practical experience, MAN – Master Accountant Network approaches business management cost auditing not only to review compliance but also to identify optimal operating cost gaps for clients. Each audit is accompanied by recommendations for improving spending regulations, helping businesses reduce tax risks for future accounting periods.
The team involved consists of certified public accountants (CPAs) with in-depth knowledge of tax risk management practices in Vietnam across various business types, from family businesses to foreign-invested corporations. All client-provided documents and data are kept confidential under the service contract, and MAN assumes clear legal responsibility for the audit results issued.
Unlike a broad, scattered approach, MAN – Master Accountant Network's business management cost audit solution focuses on the highest-risk items first, based on an analysis of the client's multi-period financial data. This approach shortens audit time while ensuring the detection of most material misstatements, making it suitable for businesses that need quick results for tax settlements or investor reporting.
Audit service price list The information below is for reference only; the actual cost will be surveyed and quoted specifically by MAN depending on the scale, complexity, and volume of documents for each business.
| Service package | Suitable candidates | Reference cost |
| Basic Package | Businesses with fewer than 50 employees have small administrative costs. | 15 - 25 million VND/time |
| Standard package | Businesses with 50-300 employees and multiple management departments. | 30 – 60 million VND/time |
| Advanced Package | FDI enterprises, corporations with multiple branches. | According to the agreement, after the on-site survey. |
MAN – Master Accountant Network serves clients nationwide, focusing on areas with a high concentration of businesses such as District 1 and District 7 in Ho Chi Minh City and industrial zones in Binh Duong. Over 500 clients have returned for a second service in the past year, demonstrating the high level of trust in the quality of reports and the practicality of the team's recommendations.
Case Study: How do commercial businesses in District 7 reduce management costs?
Background
A consumer goods distribution company in District 7, Ho Chi Minh City, experienced a 221 TP3T increase in business management expenses in one year, while revenue only increased by 61 TP3T. The management could not identify the specific cause of this increase.
Handle
After MAN conducted an audit of its administrative expenses, the team discovered three groups of problems: duplicated outsourcing of consulting services between two providers, transportation costs accounted for for the personal use of some middle-level managers, and an overestimation of the provision for bad debts.
The measured results
- Reduce redundant and unreasonable expenses by approximately 380 million VND in the following year.
- Restructure the internal spending regulations with specific approval authority limits.
- No retroactive tax payments related to administrative expenses were incurred during the subsequent tax settlement period.
Expert opinion: What are the common risks when auditing business management expenses?
From the perspective of MAN – Master Accountant Network, after many years of auditing businesses in various sectors, two mistakes are most frequently repeated. Firstly, businesses often fail to clearly distinguish between shared administrative expenses and the specific expenses of each business unit, leading to an unreasonable allocation of costs between departments. Secondly, many accountants record provisions based on intuition rather than on an assessment of the actual likelihood of debt recovery.
Experts at MAN, with over 30 years of experience, note that businesses should review administrative expenses quarterly instead of waiting until the end of the year. This approach helps detect anomalies earlier, preventing errors from accumulating throughout the year before being addressed, thereby significantly reducing tax risks during final settlement.
Conclude
Auditing business management expenses is not just a financial reporting compliance procedure; it's also a tool that helps CEOs and CFOs clearly see where operating cash flow is going. A properly conducted audit will accurately identify waste, accounting errors, and legitimate expenses that should be retained to maintain operations.
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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
- E-mail: man@man.net.vn
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- LinkedIn Founder: View expert Le Hoang Tuyen's LinkedIn profile.
Responsible for production and professional content review by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, taxation, and corporate financial consulting.
Frequently Asked Questions about Business Management Cost Audits
Is it mandatory to conduct annual audits of business management expenses?
While not legally required for all businesses, it is an essential procedure in mandatory financial statement audits and is recommended to be performed periodically to control tax risks.
How does auditing administrative expenses differ from auditing selling expenses?
Business management expenses are reflected in account 642, serving general operational activities. Selling expenses are reflected in account 641, serving product sales activities. These two audit areas have separate objectives but are usually conducted concurrently.
How long does it take to conduct a business management expense audit?
Depending on the size of the business, it typically takes 3 to 10 business days for small and medium-sized enterprises, and longer for businesses with multiple branches or a large volume of documents.
Which expenses are most often excluded by tax authorities during audits?
Expenses lacking valid invoices, expenses not related to business purposes, and expenses exceeding limits set by internal regulations or legal provisions are the three most common categories of excluded expenses.
What documents does a business need to prepare before an audit of its administrative expenses?
You need to prepare detailed accounting records for account 642, original documents, internal spending regulations, outsourced service contracts, and fixed asset depreciation allocation schedules.
