The internal audit department is an independent unit within a company that evaluates and improves the effectiveness of the risk management and internal control systems. This department serves the Board of Directors and the Management Board to ensure legal compliance, the reliability of financial reporting, and the optimization of operational processes.
This model applies to businesses, especially those in the scaling-up phase, that require tight control over finances and taxes. As a business grows beyond the limits of manual management, establishing this department becomes essential for sustainability.
What is an internal audit committee according to legal regulations?
As stipulated in Article 10 Decree 05/2019/ND-CPThe performance of internal audit work is classified as follows:
The units are required to carry out the work. internal audit include:
- The company is listed on the stock market.
- State-owned enterprises are parent companies operating under a parent company-subsidiary model.
- State-owned enterprises with more than 50% of charter capital are parent companies operating under a parent company-subsidiary model.
Businesses that do not fall under the above categories are encouraged to conduct internal audits to improve their governance capabilities.
Businesses are not required to have an internal audit department as a permanent unit; what's important is that they can effectively perform internal audits. If a business lacks the resources to establish a dedicated department, it can hire an independent audit firm or assign the task to the Supervisory Board (if they have the necessary capabilities). Experts at MAN – Master Accountant Network emphasize that the core objective is ensuring compliance and risk management, rather than focusing on the organizational structure.
Why do SMEs need to establish an internal audit committee?
Many SME business owners believe this department is only for large corporations or listed companies. However, business reality in Vietnam shows that as businesses expand, the dispersion of information and power is a major cause of loss risk.
Without strict controls, risks related to cash flow, accounts receivable, and especially tax reporting discrepancies will gradually increase over time. A professional internal audit team will help business owners identify these loopholes early. Instead of facing complex and costly tax audits, businesses can proactively make adjustments from within. This is a proactive preventative measure that helps protect profits and the company's reputation in the market.
Organizational orientation and structure ensure independence.
This is the biggest challenge for business owners when starting out. To ensure objectivity, the internal audit team should not be under the direct supervision of the accounting department or the CEO, as this can easily lead to conflicts of interest.
The optimal model recommended by experts at MAN – Master Accountant Network – is reporting directly to the Board of Directors or Board of Members. This ensures that the audit conclusions are not interfered with by those directly operating the audited department.
HR and administrative departments need to understand that this is an independent unit, not a judicial body, but rather a support unit to improve overall work processes. Placing this department directly under the Board of Directors helps to enhance the status and effectiveness of audit recommendations.
Standard internal audit procedures for businesses.
One internal audit process The following steps should be followed to ensure that the output data has practical value.
- Audit planning: Determine the scope, objectives, and resources required. Prioritize areas with high financial and tax risks.
- Conducting the audit: Gathering evidence, interviewing departments, and cross-referencing data from actual records.
- Results Report: This report identifies existing problems, their root causes, and proposes specific solutions. According to Article 16 of Decree 05/2019/ND-CP, this report must be submitted to the Board of Directors, the Board of Members, the Chairman of the company, the Supervisory Board, and the General Director.
- Follow-up and corrective action: Review whether departments have implemented the recommended improvements.
According to the expertise of MAN's team of specialists with over 30 years of experience, the key is not the number of reports but the feasibility of the solutions offered. Each process needs to be customized based on the specific business model of the enterprise.
Distinguishing internal audit from other supervisory bodies.
In corporate governance, many people often confuse the supervisory board with the internal audit board. This distinction needs to be clarified from the outset to avoid overlapping functions.
- The Supervisory Board: This is the body representing the shareholders, responsible for overseeing all activities of the Board of Directors and the Management Board. It serves as the legal representative of the owners.
- Internal audit committee: A corporate governance tool focused on evaluating the effectiveness of operational processes, risk management, and compliance.
Note: For small and medium-sized enterprises, the Supervisory Board may assume the role of internal auditor if they meet the required qualifications and length of service. However, for best governance, these two roles should be separated to ensure objectivity and in-depth expertise.
The legal framework to understand regarding internal audit committees (Updated 2026-2027)
The operation of this department must be based on current legal documents to ensure its validity. The documents that businesses need to pay attention to include:
- Decree 05/2019/ND-CP: Specific regulations on internal auditing in enterprises.
- Circular 66/2020/TT-BTCGuidelines on professional ethical standards for internal auditors.
- The latest regulations under the Accounting Law and the Tax Administration Law (updated to 2026-2027) relate to corporate accountability.
Experts at MAN – Master Accountant Network note that businesses need to regularly update themselves on new regulations from the tax authorities to adjust internal processes in a timely manner. Failure to keep up with the law is the biggest risk, causing the control system to become outdated and unable to protect the business against policy changes.
Real-world case study: Process optimization in a manufacturing company.
A mechanical manufacturing company in Ho Chi Minh City faced unexplained material losses and frequent fines for incorrect tax declarations. After analysis, MAN – Master Accountant Network found that the accounting department was also responsible for inventory monitoring and expenditure approval, leading to a lack of separation of responsibilities.
We advised on establishing an independent internal audit committee. The results after 12 months:
- The inventory mismatch rate decreased from 151 TP3T to below 21 TP3T.
- Tax risks are well controlled through pre-settlement reviews.
- Operating costs are optimized by eliminating unnecessary steps.
This demonstrates that, when implemented correctly, this component is not an expense, but rather an investment that yields direct returns by preventing losses.
Expert opinion from MAN on tax risk management.
With over 30 years of experience in auditing and tax consulting, experts at MAN believe that the biggest risk SMEs often face is the "accounting is everything" mindset. In reality, accounting only reflects what has already happened, while internal auditing helps guide what needs to be done to avoid future risks.
When building an internal audit team, start by standardizing processes. Don't focus too much on senior personnel from the outset; instead, concentrate on tax risk control processes in Vietnam. Utilize auditing services External collaboration in the initial stages helps businesses learn professional working methods, thereby building a strong internal team later on.
Comparing options: Outsourcing or building your own team
The choice between building an in-house team or using external internal audit services depends on the size and budget of the business.
| Characteristic | Build your own team. | Utilize outsourcing services. |
| Expense | Fixed, high (salary, training) | Project-based flexibility |
| Independence | It's difficult to guarantee absolute certainty. | Very high |
| Expertise | Depends on personnel capabilities. | Access to a team of experienced professionals. |
| Applicable period | Long (requires training time) | Fast, ready for immediate deployment. |
At MAN – Master Accountant Network, we often advise SMEs to start by outsourcing the establishment of their process framework, and then gradually transfer it to their internal team once the business has stabilized.
Conclude
Establishing an internal audit committee is a crucial strategic step for SMEs to achieve sustainable and secure growth in the context of increasingly stringent regulations. Effective risk control not only helps avoid unnecessary penalties from tax authorities but also creates a solid foundation for businesses to raise capital and expand.
If your business needs a comprehensive risk management solution and auditMAN – Master Accountant Network is a leading trusted partner. With a team of experts boasting over 30 years of experience in auditing, accounting, and taxation in Vietnam, we offer comprehensive packages. internal audit services Customized to your specific business needs, our solutions allow you to focus on your core business activities with peace of mind. Contact us today for expert advice on building an optimal internal control system.
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 the Internal Audit Department
Is an internal audit department mandatory for all businesses?
No. According to Decree 05/2019/ND-CP, it is only mandatory for listed companies and state-owned enterprises (or those with more than 50% state capital) as parent companies. Other businesses are encouraged to comply.
Can I assign the accounting department to handle internal auditing?
Absolutely not. Having an accountant also perform internal auditing would violate the principle of independence, as auditing is meant to evaluate the work of the accountant. You can delegate this to the Supervisory Board if they are qualified, or hire an independent auditing firm.
What qualifications are needed for an internal auditor?
According to Article 11 of Decree 05/2019/ND-CP, candidates must possess a relevant university degree, up-to-date knowledge, and 3-5 years of experience in auditing, accounting, inspection, or management.
To whom are internal audit reports sent?
Reports must be prepared promptly and submitted to the Board of Directors, Board of Members, Chairman of the company, Supervisory Board, and General Director (Director) to ensure that all levels of leadership are aware of the risks.
How do internal audit services benefit SMEs?
It helps detect risks early, optimize operational processes, ensure compliance with tax laws, and enhance the reliability of financial reporting for shareholders and banks.
