Who are the entities subject to mandatory audits?
According to Article 37 of the Law on Independent Auditing dated March 29, 2011, and Article 15 of Decree No. 17/2012/ND-CP dated February 13, 2012, guiding the Law on Independent Auditing, the following entities are subject to mandatory auditing:
- preparing Financial Statement Annual figures for foreign-invested enterprises.
- Annual financial statements of public companies, securities issuers, and securities trading organizations.
- Annual financial statements of enterprises and organizations in which the State holds 20% or more of the voting rights of corporations and conglomerates at the end of the fiscal year.
- Annual financial statements of enterprises in which listed companies, issuers, and securities trading organizations hold 20% or more of the voting rights at the end of the fiscal year.
- And some other subjects.
Foreign-invested enterprises
According to the definition in Clause 17, Article 3 of the 2014 Investment Law, a foreign-invested enterprise is understood as an enterprise in which foreign investors are members or shareholders. Accordingly, the definition of a foreign investor is also clearly explained in Clause 14 of this Article as follows:
"Foreign investors are individuals with foreign nationality or organizations established under foreign law that conduct investment and business activities in Vietnam."
Why do businesses forget to get audits?
Foreign investors invest in or establish businesses in Vietnam (hereinafter referred to as business A) and, through this business, continue to invest in other Vietnamese businesses (hereinafter referred to as business B).
Company B only focused on the fact that Company A is a Vietnamese company, without considering Company A's capital structure to determine whether it should be subject to mandatory financial statement audits. Since Company A's capital structure includes foreign investment, when Company A contributes capital to Company B, Company B also becomes a foreign-invested enterprise and consequently subject to audits under current regulations.
Administrative penalties for failing to conduct an audit.
According to Clause 3, Article 53 of Government Decree No. 41/2018/ND-CP dated March 12, 2018, regulating administrative sanctions in the field of accounting and independent auditing:
"A fine of VND 40.000.000 to VND 50.000.000 shall be imposed on audited entities that fail to conduct mandatory audits of financial statements, project completion reports, consolidated financial statements, aggregated financial statements, and other audit work as prescribed by the law on independent auditing and other relevant laws."
Therefore, to avoid penalties for failing to conduct financial statement audits as required, businesses need to carefully review the entities that are mandated to be audited, as well as review the capital contribution structure of businesses investing in their company.