Internal auditing in businesses is not only a legal compliance requirement but also an essential risk management tool in a volatile economic environment. In Vietnam, the emergence of... Decree 05/2019/ND-CP This marked a significant turning point, forcing many types of businesses to establish systematic internal control systems to ensure transparency in financial and operational reporting.
In fact, effective internal audit units within businesses can reduce the risk of fraud and accounting errors by up to 40%, according to industry statistics. A thorough understanding of the regulations at Circular 66/2020/TT-BTC A standardized internal audit procedure will help the board of directors and executive management gain an objective perspective, thereby enabling them to make the most accurate strategic decisions.
Current legal framework for internal auditing in businesses.
Internal auditing within a business must be based on solid legal grounds to ensure its enforceability and effectiveness before tax authorities and shareholders.
Decree 05/2019/ND-CP – A guiding principle for auditing activities
Decree 05/2019/ND-CP provides detailed regulations on the mandatory and encouraged implementation of internal auditing in enterprises. This is the highest legal document directly regulating this activity, emphasizing the independent and objective role of the audit department in relation to the management system.
The law clearly stipulates that listed companies and companies in which the State holds more than 50% of the charter capital are required to establish an internal audit system. Failure to comply can lead to serious administrative sanctions and erode investor confidence in the stock market.
Circular 66/2020/TT-BTC and professional ethical standards
Circular 66/2020/TT-BTC provides guidance on implementing the model regulations, helping to standardize internal auditing in enterprises. This document specifies the steps for planning, conducting audits, and preparing audit reports to be submitted to the Executive Board and the Board of Directors.
Internal auditors in businesses need to adhere to the principles of integrity, objectivity, confidentiality, and professional competence. These values build trust, which leading economic experts always emphasize when evaluating a financial institution.
Which entities are required to conduct internal audits within a business?
Not all organizations have the same legal obligation to establish this department; however, modern governance trends are encouraging its widespread adoption.
Classification of businesses according to legal regulations
Based on the regulations in Article 10 of Decree 05/2019/ND-CP, we have the following classification table of entities performing internal audits in enterprises:
| Business type | Required status | Legal basis |
| The company is listed on the stock market. | Have | Decree 05/2019/ND-CP |
| State-owned enterprises are the parent companies. | Have | Decree 05/2019/ND-CP |
| State-owned limited liability company | Have | Article 8 of the Law on State Capital Management |
| Small and medium-sized private enterprises | Encourage | Voluntary governance |
Benefits of voluntary implementation by businesses
Although not mandatory, implementing internal audits in businesses provides a significant competitive advantage when accessing bank loans or attracting international investment. A good internal control system demonstrates professionalism and transparency in tax reporting.
Foreign direct investment (FDI) enterprises often prioritize establishing internal audits within the company from the initial stages of establishment to synchronize processes with the parent company. This helps prevent risks related to transfer pricing and accounting errors in cost accounting.
Functions and responsibilities of internal audit in a business
To understand why internal audit services are important, we need to analyze in depth the core functions this department performs within the operating system.
Check for compliance with laws and internal regulations.
The top priority of internal audit In businesses, this involves assessing the level of compliance with tax and accounting regulations and guiding circulars from the Ministry of Finance. Early detection of errors in VAT or corporate income tax declarations will help businesses avoid unnecessary late payment penalties.
In addition, internal audits within businesses also review the implementation of internal spending regulations and approved economic and technical standards. This ensures that all cash flows are used for the right purposes and efficiently, minimizing waste of company resources.
Assessing the internal control and risk management system.
Internal control systems are often likened to the "immune system" of an organization. Internal audits within a business are responsible for verifying whether control mechanisms are functioning as designed, from purchasing and warehousing to sales and cash collection.
In the digital age, internal auditing in businesses has expanded to include IT system and data security audits. Protecting customer information and trade secrets has become an integral part of modern auditing practices to address cyber risks.
The standard procedure for conducting internal audits in businesses.
A successful audit requires a systematic and logical approach to ensure that no material risks in the financial system are overlooked.
Audit planning based on risk assessment.
The first phase of internal auditing in a business is to identify high-risk areas to focus resources on. For example, departments such as purchasing and treasury are often prioritized for quarterly audits due to their vulnerability to asset fraud.
An internal audit plan within a company must be approved by the Board of Directors before implementation. This plan must detail the timeline, personnel involved, and verification methods such as cross-referencing, physical inventory checks, and employee interviews.
Conduct audit tests and gather audit evidence.
During the audit process, internal auditors within a company will use sampling techniques to examine the authenticity of accounting documents. All findings must be based on concrete evidence, not on the subjective assumptions of the individual auditor.
The application of software in internal auditing within businesses helps to accelerate the processing of large amounts of data (Big Data). Algorithms can automatically detect unusual transactions, allowing auditors to focus on truly serious issues.
Reporting on results and monitoring the implementation of recommendations.
After the audit is completed, the internal audit department of the enterprise prepares a comprehensive report summarizing the errors and proposing corrective solutions. This report serves as the basis for the Board of Directors to adjust operational processes, optimize the accounting system, and better comply with tax laws.
Most importantly, internal audits within a business must conduct follow-up audits of the recommendations made in the previous report. Whether the errors are thoroughly corrected determines the actual effectiveness of the entire audit process within your organization.
Distinguishing between internal audit and independent audit
Many businesses often confuse these two concepts, leading to a failure to maximize the effectiveness of their internal control systems.
Differences in purpose and scope
Internal auditing within a business focuses on improving governance and advising management throughout the fiscal year. Independent auditing, on the other hand, primarily verifies the accuracy and fairness of financial statements at a specific point in time.
| Criteria | Internal auditing in businesses | Independent audit |
| Reporting entities | Board of Directors / Management Board | Shareholders / Government Agencies |
| Scope of work | Complete operational activities | Materiality in financial statements |
| Periodicity | Continuously, regularly | By fiscal year |
| Focus | Preventing future risks | Confirm historical data. |
The reciprocal relationship in corporate governance
Despite the differences, internal auditing within a business provides a reliable data foundation for independent auditing. A robust internal audit system helps external auditors shorten audit time and reduce audit costs for the business.
Close collaboration between an internal audit department and accounting service providers ensures that records are always ready for tax settlements. This creates a secure financial protection loop.
Challenges in implementing internal audits in businesses.
Despite its many benefits, establishing this department is not always straightforward, especially for small and medium-sized enterprises in Vietnam.
Cost barriers and access to highly skilled human resources.
To conduct effective internal audits within a business, an organization needs a team with in-depth knowledge of finance, tax law, and risk management. The cost of maintaining a dedicated department is often quite high, posing a burden for businesses in the recovery phase.
Outsourcing internal audit services is becoming the optimal solution today. Companies like MAN – Master Accountant Network provide a team of experienced professionals at flexible costs, helping you own an internationally standardized internal audit system.
Independence and pressure from the executive board
Independence is the "soul" of internal auditing in a business. However, in many cases, auditors are influenced by personal relationships or management pressure, leading to dishonest reporting of operational irregularities.
To address this, the internal audit model in modern businesses requires this department to report directly to the Board of Directors. This separation of interests helps maintain the highest level of objectivity in all final audit conclusions.
Application of technology in internal auditing in businesses.
In the era of Industry 4.0, traditional auditing methods are gradually being replaced by more powerful and intelligent digital tools to optimize performance.
Continuous Auditing
Thanks to integrated ERP accounting software, internal auditors in businesses can perform real-time data checks. Instead of waiting until the end of the period, auditors can detect discrepancies in transactions as soon as they occur.
This technology helps internal audits within businesses shift from a gatekeeper role to an early warning role. This is extremely important for businesses with high volumes of cash transactions or complex warehousing systems.
Data analysis and artificial intelligence (AI)
AI helps internal auditors in businesses identify potential fraudulent activities by analyzing the behavior of employees and partners. For example, AI can pinpoint orders with unusually high discounts compared to market rates.
The application of technology not only increases accuracy but also helps internal auditors in businesses save up to 60% of time on procedural tasks. As a result, resources can be focused on strategic consulting and profit optimization.
Common errors discovered through internal audits.
Below are some typical issues that internal audits frequently identify in current business and production units.
Errors in accounting and taxation
Internal audits within businesses often uncover incorrect revenue recognition or ineligible capitalization of expenses according to accounting standards. If these errors are not corrected promptly, they can lead to significant tax arrears.
In addition, the lack of original documents or invalid invoices are also common errors. Internal audits within businesses play a crucial role in reviewing all records before tax authorities conduct on-site inspections at the company's offices.
Loose asset and inventory management
Many internal audits in businesses reveal significant discrepancies between accounting records and actual inventory. This is often due to lax inventory management procedures or collusion between employees and shipping companies.
| Risk area | Common types of violations | Impact |
| Cash in hand | Overdue advances, misuse of funds. | Lack of liquidity |
| Inventory | Loss of materials, no provision for contingency. | Cost discrepancies |
| Fixed assets | Unlabeled, misused. | Wasteful depreciation |
| Purchasing | Inflating purchase prices and receiving illegal commissions. | High input costs |
Strategies for building a strong internal audit department.
For internal auditing within a business to be truly effective, business owners need to have the right vision and make a worthwhile investment in this control system.
Continuous staff training and knowledge updating.
Tax and accounting laws in Vietnam change very rapidly. Internal auditors in businesses must be the first to grasp new regulations in order to advise the accounting department on complying with current tax management regulations.
Encouraging internal auditors in businesses to obtain international certifications such as CIA not only enhances their professional skills but also affirms the organization's reputation with international partners and banks.
Building a culture of integrity and transparency.
Internal auditing in a business should not be viewed as a police force catching mistakes, but rather as a partner in perfecting processes. When employees understand that internal auditing helps them work more safely and avoid subjective errors, they will cooperate better.
The unwavering support of the company's leader is a prerequisite. If leaders disregard the findings of internal audits, the entire control system will soon become merely a formality and lose its inherent governance effectiveness.
Conclude
Internal auditing within a business is a journey to build lasting trust and transparency for the organization. In the modern context, this role goes far beyond simply checking numbers, becoming a strategic partner that helps you identify risks and optimize cash flow, minimizing unreasonable tax expenses incurred annually.
MAN – Master Accountant Network, with its team of highly experienced professionals, proudly offers the most professional internal audit services. We are committed to helping you build a robust control system, complying with Decree 05/2019/ND-CP and professional ethical standards. Let MAN accompany you on your journey to protect your assets and increase value through comprehensive internal audit solutions.
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Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
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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.
Frequently Asked Questions about Internal Auditing in Businesses
Although not legally required, small businesses should still establish basic control points to protect assets and ensure accurate accounting data for internal management purposes.
According to Decree 05/2019/ND-CP, businesses can hire professional companies to perform internal audit functions in order to optimize personnel costs and ensure objectivity in reports.
Typically, this report is for internal use only for management purposes; however, during tax audits, authorities may request its provision to assess your company's control system.
The chief accountant is responsible for managing the accounting system, while internal auditors act as independent supervisors to verify that the accounting department is following legal procedures. Do small businesses need to establish an internal audit system?
Is it possible to completely outsource internal audit services within a business?
Do internal audit reports need to be submitted to the tax authorities?
What is the biggest difference between a chief accountant and an internal auditor?
