Organization and internal auditing activities in Vietnamese firms: Situations and solutions

Abstract:

Today auditing plays an important role in corporate governance. Internal auditors have

derived from the desire of the managers. This study analyzes the current situation of

internal audit organization and operations in Vietnamese firms, thus pointing out the

limitations and causes of limitations and proposing solutions to perfect the organization

and Internal audit activities in the firms.

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Organization and internal auditing activities in Vietnamese firms: Situations and solutions
 allowed in the 
company, activities and reports to be performed. In the meantime, another role is to check 
whether there is a making decisions and processes compatible with the ethics and politics of 
the entity and the degree of risk allowed. 
 According to IIA, internal auditing is an independent function within the unit. Internal 
auditors have the highest degree of independence when reporting results to the highest level 
of responsibility, ie, the CEO, and the reporting to the board of directors through a specialized 
unit. This specialized agency should have independent members and expertise in accounting 
and auditing. The specialized agency is also responsible for monitoring the risk, compliance, 
accounting and auditing functions. The Board of Directors has the authority to appoint, 
dismiss and determine the salary of the Chief Internal Auditor. Internal auditors and internal 
audit personnel must have the necessary expertise, knowledge and skills together with 
necessary certificates and qualifications. Internal auditors perform audit and advisory tasks 
related to internal control, risk management and governance within the unit. Internal auditors 
are not involved in control activities or management responsibilities in their day-to-day 
operational procedures to ensure their impartiality. 
 As such, internal auditors represent an independent, neutral objective of insurance and 
advisory activity that aims to improve companies, operations and create added value for them. 
The role of internal auditors emerged and attracted management attention to potential risks, 
established acceptable risk limits, and provided operational support. Through its operations , 
the internal auditors are responsible for highlighting the internal control system of the 
organization. 
2. Current Situations of Organization of Internal Audit at Vietnamese Firms 
 The organization and operation of internal audit in firms in Vietnam is regulated in 
Decision No. 832-TC / QD / CDKT on the issuance of the Regulation on Internal Audit 
(Internal Audit) applicable to State Enterprise (Enterprise); Circular No. 171/1998 / TT-BTC 
of December 22, 1998 guiding the implementation of internal audit at State firms, whereby 
the internal audit system shall apply to State firms. Internal auditing includes auditing, review, 
evaluation, management and monitoring activities for all public bodies and organizations to 
ensure the economy, efficiency and effectiveness of operations, governance of the unit. 
In recent years, new internal audits have been more concerned. Specifically, the 
revised Accounting Law takes effect as from January 1, 2017 for the first time regulating 
internal auditing. According to Article 39 of the Accounting Law (2005), internal audit is the 
examination, assessment and supervision of the adequacy, suitability and effectiveness of 
internal control. Internal auditors have the tasks of: checking the suitability, effectiveness and 
effectiveness of the internal control system; To examine and certify the quality and reliability 
of economic and financial information of financial statements and management accounting 
reports before submitting them for approval; To inspect the compliance with the principles of 
operation, management, compliance with law, financial and accounting policies, resolutions 
n trÞ - Kinh nghiÖm quèc tÕ vµ thùc tr¹ng ë ViÖt Nam 
 37 
and decisions of the leaders of the accounting units; To detect loopholes, weaknesses and 
frauds in the management and protection of the units' property; To propose solutions to 
improve and perfect the management and operation system of the accounting units. 
2.1. Organizational structure and mechanism of internal audit activities in firms. 
* Organizing the internal audit function. 
Auditing has been taking place in Vietnam since 1991 but until 1997, the legal basis 
relating to auditing organization was promulgated. The formation of internal auditing in 
Vietnam is mainly in state-owned corporations established under the Prime Minister's 
Decision No. 90 / QD-TTg or Decision No. 91 / QD-TTg. These organizations, due to the 
trend of scale development as well as the diversification of the business sector, generated the 
need to set up an internal audit department. 
Internal audits held in economic organizations or in corporations are also organized in 
different models, depending on the views and perceptions of unit managers. However, it is 
basically organized in accordance with the general principles of building internal auditing, 
and at the same time has shown some distintivecharacteristics. Some models of internal 
auditing are currently implemented in Vietnamese firms: 
First, the internal audit model is organized into a separate functional department under 
the general director. The General Director shall assign the person in charge of the audit work. 
In particular, the main trend of the current companies is to assign a deputy general director 
who directly directs the internal audit activities. 
According to this model, the internal audit department of corporations is usually run 
by the Deputy General Director in charge of finance, accounting and auditing. This has partly 
diminished the independence of the internal audit department. 
Second, the internal audit department is organized into an audit team within the 
control board. Internal audits are developed under the direction of the control board, which is 
a model widely used in financial institutions when they are governed by the Law on Credit 
Institutions. The internal audit of this model ensures the independence of the performance of 
internal audit functions. On that basis, the internal auditor will report the work to the General 
Director and the audited entities first of all. This organizational model ensures the 
independence and power of internal auditing. 
Third, the internal audit department is organized into an organization of the accounting 
department of the holding company. In fact, this model is not widely applied in Vietnamese 
firms today. According to this model, the internal audit organization shall conduct the audit 
according to the decision of the General Director. The internal auditor will report the work to 
the control board and the general director first. In this way, the enterprise arranges personnel 
in a concurrent manner: the deputy head of the board of control or the accounting and finance 
section may assume the position of head of the internal audit section. 
* Mechanism of operation and main tasks of internal audit 
Internal auditing in firms performs audits of activities and audits specific purposes 
(auditing by thematic). Performance auditing is an audit aimed at reviewing and assessing the 
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 38 
economy, effectiveness and effectiveness of audited operations. Auditing specific purposes 
includes auditing beyond the scope of the performance audit. 
The internal auditing activities in the assigned firms perform the audit function and the 
qualified persons as the auditors. After completing the audit work, internal auditors and 
auditors shall have to make reports on auditing results and submit them to the head of the 
audited entity. 
2.2. Weaknesses of Organization and Operations of Internal Audit in Vietnamese firms 
 After 20 years of establishment and development, internal audit activities in 
Vietnamese firms have shown it is necessity in the management of firms. Besides the 
advantages, the organization of internal auditing in Vietnamese firms has revealed some 
limitations as follows: 
 Firstly, in firms, internal auditing organizations are mainly focused on corporations or 
state economic groups. In these firms, the internal audit unit is also organized in many 
different models. Some firms, internal audit unit is organized into an independent function 
directly under the General Director, but in other firms, internal audit is organized into a group 
or an internal unit of financial and accounting department. The accounting department 
performs the function of processing and providing information and also performs the 
accounting audit function. 
 Secondly, the organization of the internal audit system has not been regulated or 
guided the appropriate form and organization. Practices of Vietnamese companies to self-
identify the form of organization of internal auditing unit in accordance with company’s 
characteristics. 
 These limitations, due to the following reasons: 
 Firstly, managers have different views on the role and effects of internal audits in the 
unit's control. There are many views that the organization of the internal audit department is 
unnecessary, as it can make the cumbersome management, increase the unit cost, especially 
managersemotionally does not want to have a section to examine and evaluate their activities. 
 Secondly, the State management agencies are now only issuing about internal audit 
regulations itself, there are no regulations required firms to organize internal audit 
department. The National Assembly has promulgated the Law on Accounting, the State Audit 
Law and the Independent Auditing Law, but have not yet promulgated a specific law on 
internal auditing, only have a section about internal audit in the Accounting Law 2015. Not 
yet promulgated the internal audit standards as well as regulations on the legal status, 
responsibilities and powers of internal audit. 
 Thirdly, universities and training institutions are not focused on training in internal 
audit. Most of the universities in the economic sector of Vietnam only focus on professional 
training on independent audit, state audit, not put the subject of internal audit into the 
curriculum. In addition, there are very few professional training centers on Internal Auditing. 
 Fourthly, internal audit is a unit of enterprise, carrying out audittingand control actions 
of the enterprise’s main activities itself. Therefore, independence has not been ensured. At 
many unit, internal auditors still hold positions and other specialized jobs in the executive 
n trÞ - Kinh nghiÖm quèc tÕ vµ thùc tr¹ng ë ViÖt Nam 
 39 
apparatus of the company. As a result, the internal auditor is in a state of inability and 
opportunity to give his / her opinion objectively in the audit process as well as in the 
assessment and presentation of the audit report. 
 Fifthly, at the present time, the organization of the internal audit department is still 
only formal, not yet trully functioningand taking tasks as an internal audit. The format and 
scope of internal audits are still of the same nature as accounting audits. Mainly after-activity 
audits are performed and focus only on content sections and targets that contain many errors 
or with high risk. Companies only apply methods of collecting audit evidence are the same as 
accounting audit methods. Most of the businesses do not have the research and assessment on 
internal control system. As a result, the content, scope and duration of the audit have not been 
properly defined. 
3.Conclusion 
 In order to overcome the shortcomings and limitations in order to organize internal 
auditing activities in firms effectively and in line with the tasks and functions of internal 
auditing, the following solutions should be implemented: : 
 Firstly, business executives need to recognize the role of internal audit in corporate 
governance as an effective management tool in preventing, detecting and dealing with 
negative, fraudulent in the management and operation of economic and financial activities in 
the unit. Therefore, business executives need to have a more positive view of internal 
auditing, which is not entirely an examination of individual or collective behavior, but it is 
finally to build a sustainable business enterprise. 
 Secondly, the State should develop and issue regulations for internal auditing in line 
with new conditions, guiding companies to set up an internal audit unit. The State should 
issue regulations and sanctions, forcing firms to organize internal audit. 
 From the Ministry of Finance, it is necessary to issue internal audit standards and 
guidelines in line with international standards and practices. Providing practical guidance, 
applying the internal audit framework and risk management in a standardized manner, as a 
basis for internal audit development in line with international practice. In addition, there 
should be regulations on legal status, independence, professional ethics as well as the rights 
and responsibilities of internal audit. 
 Thirdly, focus on training and developing human resources on internal audit. 
For colleges: Focus on equipping students with the knowledge of internal auditing, which can 
put the subject of internal audit into the compulsory curriculum, for students specialized in 
Accounting - Auditing. 
 For professional associations: Regularly open training courses for certificates of 
internal audit profession in accordance with international standards and practices. Cooperate 
with leading audit organizations around the world to assist in the exchange of experience or 
the training of high quality human resources. 
 Fourthly, to ensure independence, enhance the legal status of internal auditors. The 
internal audit department must be separate and independent from the other departmentsand 
functional units of the company. There must be regulations on the independence of internal 
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 40 
auditors, during the audit process: Internal auditors do not participate in the audit of activities 
they are responsible for implementing or managing in the past. 
 The purpose, powers and responsibilities of the internal audit unit must be clearly 
stated in the official document, must clearly state the position of the internal audit unit, 
allowing the internal audit unit to access accounting books, staff and assetsrelated to the audit 
actions and clearly define the scope of activities of the internal audit. 
 Fifthly, in the process of conducting an internal audit, the methods and procedures of 
an audit should be strictly followed from the stage of audit preparation to the end of the 
audit. 
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References 
1. Ministry of Finance of Vietnam (2016), Draft of Internal Audit Decree; 
2. The Ministry of Finance (1997), Decision No.832-TC / QD / CDKT of October 28, 1997 promulgating the 
Regulation on KTB; 
3. Nguyen, P.G. (2015), Internal Auditor, Finance Publishing House, Hanoi 
4.IIA research: "Internal audit capabity model (IA-CM)", 2009 
5. Brink, V.Z. and Witt, H. (Translator: Nguyen, D.H. (2000)), Modern Internal Audit, Finance Publishing 
House, Hanoi; 
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