The principles of financial statement auditing serve as a guiding light for all auditor activities, ensuring the transparency of accounting information. According to reports from regulatory agencies, over 901 material misstatements were detected thanks to strict adherence to these standards.
In Vietnam, this activity is regulated by Independent Auditing Law 2011 and the system of 47 Vietnamese Auditing Standards (VSA) issued by the Ministry of Finance. This helps to strengthen confidence for investors and tax authorities. Mastering the principles of financial statement auditing is a mandatory requirement for practitioners and serves as a basis for businesses to self-assess their risks.
The legal framework governing the principles of auditing financial statements.
In Vietnam, the principles of financial statement auditing are codified through a comprehensive system of legal documents. This creates a safe and consistent legal framework for independent auditing activities.
Below are the most important legal documents that auditors and businesses need to be aware of:
| Document | The main content relates to auditing principles. |
| Law on Independent Auditing No. 67/2011/QH12 | Regulations concerning the principles of professional practice, qualifications for auditors, and responsibilities of audited entities. |
| Circular 214/2012/TT-BTC | The Vietnam Auditing Standards (VSA) system has been promulgated – providing the technical basis for all audits. |
| Circular 70/2015/TT-BTC | Regulations on the Code of Professional Ethics for Accountants and Auditors (Integrity, Objectivity, Independence, etc.). |
| Decree 17/2012/ND-CP | Details of the implementation of certain provisions of the Law on Independent Auditing regarding information confidentiality and state management. |
The principles of auditing financial statements require auditors to stay up-to-date with the latest regulations from the Ministry of Finance to avoid errors when evaluating evidence.
The role of financial statement auditing principles for stakeholders.
Strictly enforcing the principles of financial statement auditing brings multifaceted benefits, ensuring that capital flows to the right businesses in a transparent manner.
- Investor: Minimizing information risk helps in making more accurate stock buy/sell decisions.
- Bank: It serves as a reliable basis for assessing debt repayment capacity and approving credit.
- Tax Authority: Ensuring businesses fulfill their tax obligations will help reduce revenue losses for the state budget.
- Businesses: Identifying gaps in internal control systems to improve management and operational efficiency.
Core professional ethical principles (VSA 200)
According to VSA 200, the principle audit of financial statements This stems from stringent ethical standards. Without integrity and independence, any audit opinion becomes worthless to the users of the report.
The Principle of Independence
Independence is the "soul" of the auditing profession. The principles of auditing financial statements require auditors to be independent both in thought and form, having no economic or family relationship with the audited entity.
For example, an auditor who owns shares in Company A is not allowed to participate in the audit of that same company. This restriction aims to ensure that the opinion given is not distorted by personal interests.
Integrity and Objectivity
Integrity demands honesty and truthfulness. Objectivity means not allowing prejudice, conflicts of interest, or third-party influence to influence professional judgment.
The principles of financial statement auditing clearly state that auditors must report errors truthfully, regardless of pressure from the entity's management.
Professional Competence and Due Care
The principles of auditing financial statements require auditors to maintain the necessary professional knowledge. Prudence demands that they work diligently and carefully, in accordance with applicable technical standards.
Auditors need to participate in continuing education programs (CPD) to understand the latest tax and accounting regulations, thereby enabling them to make accurate assessments.
Information security (Confidentiality)
Confidentiality is a crucial principle in financial statement auditing aimed at protecting clients. Auditors must not disclose information to third parties unless they have consent or are legally obligated to do so.
The risk-based and materiality-based implementation principles (VSA 315 & 320)
In practice, auditors cannot examine 100% transactions. Therefore, modern financial statement auditing principles focus on high-risk areas and material items.
Determine the level of materiality.
Materiality refers to information whose absence or inaccuracy could alter the decisions of those using the report. The principles of financial statement auditing require establishing "thresholds" to focus resources accordingly.
Materiality levels are typically calculated as a percentage of Revenue, Profit, or Total Assets. Deviations below this level may be disregarded if they are not substantial.
Assessing the risk of material misstatement
The risk-based principles of financial statement auditing help in effective planning. Auditors need to assess the inherent risks and control risks of the business.
For example, a business with a large inventory of perishable goods would be identified as a high-risk area. Auditors would need to witness more thorough inventory checks in these locations.
The principle of gathering sufficient and appropriate audit evidence (VSA 500)
All auditors' opinions must be based on factual evidence. The principles of financial statement auditing stipulate that evidence must be "sufficient" in quantity and "appropriate" in quality.
Common methods of evidence gathering
To comply with the principles of auditing financial statements, auditors use the following techniques:
- Physical inspection: Inspect the fixed assets or inventory in person.
- Send confirmation email: Contact the bank or customer to confirm the balance.
- Recalculate: Verify the mathematical accuracy of accounting tables and charts.
- Interview: Discuss internal control procedures with staff.
Reliability of evidence
The principles of financial statement auditing emphasize that evidence from third parties is generally more reliable. Written evidence is also considered more trustworthy than purely oral evidence.
Common mistakes when applying the principles of financial statement auditing.
In professional practice, misunderstandings of principles often lead to serious legal consequences. Auditors need to pay particular attention to the following points.
- Ignore expert judgment: Over-reliance on software leads to a failure to assess the economic nature of actual transactions.
- Lack of consideration for stakeholders: Don't overlook parent-subsidiary transactions, where financial data manipulation is common.
- Regulations not updated: For example, the latest changes regarding provisions for doubtful receivables under the current circular do not apply.
Conclude
The principles of financial statement auditing are the foundation of transparent finance. Full compliance with these standards helps protect public interests and enhance the reputation of businesses in the international market.
If you need a reputable consulting firm that ensures strict adherence to financial statement auditing principles, contact MAN – Master Accountant Network. We are committed to providing optimal solutions and protecting the sustainable financial value of your business.
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Frequently Asked Questions about the Principles of Auditing Financial Statements
Are the principles of auditing financial statements mandatory for all businesses?
Only businesses subject to mandatory independent auditing under the Law (FDI, listed companies, etc.) are required to conduct it. However, other businesses should comply to enhance their reputation.
What is the biggest difference between auditing and accounting?
Accountants record and prepare reports. Auditors evaluate those reports based on financial statement auditing principles to confirm their accuracy and accuracy.
What are the consequences for violating information security principles?
Depending on the severity, auditors may have their certification revoked, face administrative penalties, or be required to compensate clients for damages in accordance with the law.
