Do 100% foreign-invested enterprises have to undergo mandatory audits? What happens if they don't comply? We want to ensure that our business operates within the legal framework. This is a question we've recently received and need detailed guidance on.
The article below will provide you with a detailed answer to the question of whether foreign-invested enterprises need to undergo audits or not.
The purpose of independent auditing
The purpose of independent auditing is as follows, according to Article 4 of the 2011 Independent Audit Law:
'Article 4. Purpose of independent auditing
Independent auditing activities aim to contribute to the public disclosure and transparency of economic and financial information of the audited entities, as well as other enterprises and organizations. It serves to enhance the investment environment, practice thrift, prevent wastefulness, combat corruption, detect and prevent legal violations, and improve the efficiency and effectiveness of the State's economic and financial management and the business operations of enterprises.
Which entities are required to undergo independent auditing?
As per the provisions of Article 15, Clauses 1, 2, and 3 of Decree No. 17/2012/ND-CP, the following entities are required to undergo auditing:
Enterprises and organizations for which the law mandates annual financial reporting must be audited, including:
Enterprises with foreign investment;
Credit institutions established and operating under the Law on Credit Institutions, including foreign bank branches in Vietnam;
Financial institutions, insurance companies, reinsurance companies, insurance brokerage companies, and branches of foreign non-life insurance companies.
Public companies, securities issuance organizations, and securities business organizations.
2. Other enterprises and organizations are required to undergo auditing as stipulated by relevant laws.
3. Enterprises and organizations must be audited, including:
State-owned enterprises, except for state-owned enterprises operating in areas classified as state secrets under the law, which are required to undergo auditing for annual financial reports;
Enterprises and organizations implementing national important projects, Group A projects using state funds, except for projects in areas classified as state secrets under the law, which are required to undergo auditing for project settlement reports;
Enterprises and organizations for which state-owned corporations or state-owned conglomerates hold 20% or more of voting rights at the end of the financial year must undergo auditing for annual financial reports;
Enterprises in which listed organizations, securities issuing organizations, and securities trading organizations hold 20% or more of voting rights at the end of the financial year must undergo auditing for annual financial reports.
Auditing firms and foreign auditing branches in Vietnam must undergo auditing for annual financial reports.
Therefore, enterprises with foreign investments are required to undergo auditing. Auditing is conducted in accordance with the provisions of the Law on Independent Auditing in 2011 (please note Chapter 4 of this document) and Decree 17/2012/ND-CP.
What happens if independent auditing is not performed?
If independent auditing is not conducted, your organization will be subject to penalties as stipulated in Article 53, Section 3 of Decree 41/2018/ND-CP regarding administrative sanctions for violations in the field of accounting and independent auditing. Specifically:
"Article 53. Sanctions for violations of regulations on the selection of enterprises for auditing, and the practice of auditors
3. A fine of between 40 million VND and 50 million VND shall be imposed on the audited entity that fails to perform mandatory auditing for financial reports, project completion settlement reports, consolidated financial reports, aggregated financial reports, and other auditing tasks as prescribed by laws on independent auditing and other relevant laws."
Therefore, your organization could be fined up to 50 million VND if independent auditing is not conducted.