Internal auditing regulations have now become mandatory for many types of businesses in Vietnam. More than just a tool for legal compliance, internal auditing plays a crucial role in controlling financial and operational risks. In the context of increasingly stringent inspections by regulatory agencies, businesses need to understand whether they are subject to mandatory auditing requirements in order to implement timely measures and avoid unnecessary penalties.
With over 30 years of practical experience in auditing and tax consulting, MAN – Master Accountant Network recognizes that many businesses still misunderstand the role of this department. This article will clarify key legal frameworks, helping Boards of Directors and Management understand the overall picture of their company's obligations under government regulations.
Quick information on internal audit regulations
Regulations on internal auditing are a collection of legal documents, the most important of which are: Decree 05/2019/ND-CPThis regulation sets out the requirement to establish an internal control system within the enterprise. The purpose of this regulation is to help the organization prevent and detect risks and improve management efficiency.
The scope of application primarily includes listed companies, state-owned enterprises, and parent companies with ownership exceeding 50% in charter capital. Implementing internal audits helps to increase transparency in financial reporting and optimize operating costs.
The nature of internal audit regulations in Vietnam
From the perspective of an expert who has been directly involved in handling tax settlement documents and advising on risk management for hundreds of businesses, I assert that internal auditing is not merely a job to deal with tax authorities. Its essence is an independent, objective function aimed at advising on improvements to the risk management, control, and operational processes of a business.
When it comes to regulations on internal auditing, we need to understand that the government wants businesses to self-assess their "health" before inspection agencies get involved. An effective internal audit department will help the Board of Directors identify gaps in cash flow, discrepancies in accounting, and the risk of asset loss at an early stage.
In Vietnam, many businesses view internal auditing merely as an additional expense. However, from the perspective of protecting business value, it is a worthwhile investment. At MAN – Master Accountant Network, we always advise our clients that investing in internal auditing is investing in the sustainability of cash flow. When processes are standardized, tax and legal risks are significantly reduced, helping businesses avoid large administrative penalties in the future.
The entities required to comply with internal audit regulations.
This is the question that MAN's clients most frequently ask us. Based on Decree 05/2019/ND-CP, businesses need to carefully check whether they are on the mandatory list.
The following individuals are required to comply. internal audit include:
- The company is listed on the stock market.
- State-owned enterprises with over 50% charter capital operate under a parent company-subsidiary model.
- State-owned enterprises are parent companies, operating under a parent company-subsidiary model.
For public service units, the regulations also apply to units that are self-sufficient in covering both recurrent and investment expenditures, or units with a salary and allowance fund of 20 billion VND or more per year, or employing 200 or more workers.
Even if your business doesn't fall into the mandatory categories mentioned above, the government still encourages its implementation. Based on my 30 years of experience, proactively establishing an internal audit system, even if not mandatory, is a wise decision for visionary managers. This helps businesses build trust with shareholders, partners, and banks when seeking funding.
Standardized internal audit procedures according to Decree 05/2019/ND-CP
Many businesses are often confused about this when they first start implementing it. internal audit processEssentially, a standard process should ensure the following steps to both meet legal requirements and deliver managerial value:
- Annual audit planning: Based on the risk assessment of each department. Priority should be given to auditing areas with a high level of risk.
- Conducting the audit involves gathering information, examining documents, interviewing personnel, and comparing the findings with internal regulations.
- Prepare an audit report: Clearly present the deficiencies and errors, and provide specific recommendations for correction.
- Monitoring the implementation of recommendations: This is the most important step, yet many organizations often overlook it. Auditing is not just about finding errors, but about ensuring those errors are corrected.
Experts at MAN often note that this process must be customized to the specific business characteristics of each company. A manufacturing company will have a completely different audit process than a trading or service company. Simply applying a standard process without considering specific risk factors is a common mistake that leads to inefficiency in this department.
Addressing issues related to personnel and internal audit standards.
Who is qualified to be an internal auditor? This is a question we frequently receive from HR departments and the Board of Directors. According to regulations, internal auditors need to meet the following basic standards:
- Applicants must possess a university degree or higher in relevant fields such as finance, accounting, auditing, law, or business administration.
- Applicants must have at least 5 years of work experience in their field of study or 3 years of experience in auditing, accounting, or inspection.
- A solid understanding of the law and the unit's operations is required.
One sensitive issue I often discuss in consultations is the independence of audit personnel. internal audit services For internal audit departments to be effective, they should be authorized to report directly to the Board of Directors or the Supervisory Board, and should not be subject to direct control from the Executive Management if there is a conflict of interest. If internal audit personnel are also accountants or involved in process management, objectivity will certainly be compromised.
Case Study: Lessons from a Risk Management Incident at a Manufacturing Corporation
To help you visualize this better, I'd like to share a real-life situation that MAN has helped handle in the past.
A large manufacturing corporation, which is required to have internal audits, neglected this for many years, focusing only on auditing year-end financial statements. As a result, for two consecutive years, the company lost tens of billions of dong in procurement costs due to the lack of risk verification procedures at the warehousing stage.
When the tax authorities conducted an audit, they discovered invalid input invoices due to risk management errors on the company's part, leading to tax arrears and heavy administrative penalties. Upon receiving the case, MAN had to restructure its entire internal control process.
What's the lesson here? Internal auditing isn't simply about accounting control. It's about controlling every link in the supply chain, from procurement and production to sales and tax obligations. If a business had implemented internal auditing regulations early on, signs of losses would have been detected by the internal audit department in the first quarter.
Expert perspective from MAN on risk management.
Throughout my 30 years in the profession, I have witnessed many Vietnamese businesses with very good governance systems but lacking connection between internal auditing and tax risk management. This is a significant gap.
Internal audit regulations should not be viewed as administrative barriers. At MAN – Master Accountant Network, we approach this differently. We not only guide businesses in complying with current legal regulations, but also help them transform the audit process into a tool for optimizing tax costs.
For example, through internal audits, we discovered that many units were incorrectly accounting for expenses, resulting in them being disallowed as deductible expenses when settling corporate income tax. If this were controlled from the spending stage through standard internal control procedures, businesses would not face the risk of being subject to retroactive tax collection at the end of the year.
MAN's solutions always emphasize prevention. We don't just intervene after a problem has occurred; we work alongside the Board of Directors to build a self-protection system. Our deep understanding of the realities of tax risk management in Vietnam is a strength that our team of experts consistently brings to our client businesses.
Comparison table of internal audit methods
Below is an analysis to help managers easily choose the appropriate model for their business:
| Criteria | Internal audit within the organization | Outsourcing |
| Expense | Fixed salary, costly training and pay. | Flexible depending on the specific case. |
| Professionalism | Employees who are committed and have a deep understanding of the culture. | Senior expert with multidisciplinary experience. |
| Independence | May be affected by internal pressure. | Very high, completely objective. |
| Suitable for | Large corporation, complex processes. | Medium-sized businesses looking to save costs. |
The choice of which approach to take largely depends on the company's size and strategy. For businesses launching for the first time, we often recommend considering outsourcing or a combination of both to leverage the expertise of external consultants before building a complete system in-house.
Conclude
Mastering internal audit regulations is not only a matter of legal compliance, but also key to enabling business leaders to gain real control over assets and business performance. A robust governance structure will be the springboard for sustainable business growth amidst market fluctuations.
At MAN – Master Accountant Network, we understand the challenges businesses face in establishing and maintaining effective audit systems. With practical consulting experience for hundreds of organizations, our experts are ready to partner with you, providing optimal audit solutions to help you focus on business growth without worrying about the management risks hidden behind the numbers.
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
- Google Business Profile: View MAN – Master Accountant Network's Google Business Profile
- 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 Internal Audit Regulations
Should businesses that are not required to conduct internal audits do so?
Yes. While not mandatory, voluntary adoption will help businesses enhance their reputation, manage cash flow better, and prepare for tax audits or when planning to raise capital from investors.
Can an internal auditor also work as an accountant?
Absolutely not. According to internal audit regulations and professional ethics principles, internal auditors must ensure independence. Having dual roles would create a conflict of interest, rendering the audit ineffective and lacking objectivity.
How is internal auditing different from the Supervisory Board?
The supervisory board typically represents shareholders in overseeing the board of directors and management, while internal audit is a management tool that assists the management and board of directors in controlling day-to-day operational risks. These two departments usually support and coordinate closely with each other.
How much does it cost to have an internal audit department?
Costs vary depending on the scope of operations. However, compared to the risk costs associated with misconduct, tax penalties, and asset losses, this is a highly cost-effective investment if implemented correctly.
Does MAN - Master Accountant Network offer internal audit services?
Yes. MAN provides comprehensive solutions including process development consulting, internal audit staff training, and outsourced audit services. With a team of experts with over 30 years of experience, we are committed to helping businesses operate safely and optimize their tax compliance.
