DECISION No.832-TC/QD/CDKT OF OCTOBER 28, 1997 PROMULGATING THE REGULATION ON INTERNAL AUDIT

THE MINISTER OF FINANCE

- Pursuant to the Ordinance on Accountancy and Statistics issued together with Order No.06-LCT/HDNN8 of May 20, 1988 of the State Council of the Socialist Republic of Vietnam;

- Pursuant to Decree No.178-CP of October 28, 1994 of the Government on the tasks, powers and organizational structure of the Ministry of Finance;

- In furtherance of Decree No.59-CP of October 3, 1996 of the Government on accounting and auditing work of State enterprises.

DECIDES

Article 1.- To issue together with this Decision the Regulation on Internal Audit to be applied by State enterprises.

Article 2.- This Regulation shall take effect from January 1st, 1998. The State enterprises, the head of the Finance Ministry's Office, the head of the Department for Accounting Regime and the General Director of the General Department for the Management of State's ital and Properties at Enterprises shall have to implement this Regulation.

For the Minister of Finance

Vice Minister

VU MONG GIAO

REGULATION ON INTERNAL AUDIT (TO BE APPLIED TO STATE ENTERPRISES)

(issued together with Decision No.832-TC/QD/CDKT of October 28, 1997 of the Minister of Finance)

Chapter I

GENERAL PROVISIONS

Article 1.- Accounting data, documents and financial statements of an enterprise shall serve as legal basis for the evaluation of its production and business situation and results as well as the fulfillment of its obligations towards the State and relevant parties.

Article 2.- The enterprise shall have to take responsibility before law for the adequacy, authenticity and rationality of accounting data and information stated in the promulgated financial statements.

Article 3.- The enterprise shall have to regularly organize internal audits to assess the quality and authenticity of economic and financial information; the safe protection of its properties; the observance of law, policies and regimes of the State as well as the resolutions and decisions of the Managing Board and the Directorate of the enterprise (including a joint stock company or joint venture where the State enterprise's ital contribution makes up more than 50%).

Article 4.- Basing itself on this Regulation, the enterprise shall set up and maintain a suitable and effective internal control system of its own and its member units.

Article 5.- Scope of an internal audit:

1. Auditing financial statements and business administration accounting reports of the enterprise and its member units;

2. Auditing the law observance;

3. Auditing operations.

Article 6.- An internal audit has three functions: inspection, certification and assessment.

The internal audit shall have the following tasks:

1. To inspect the conformity, effectiveness and efficiency of the internal control system;

2. To inspect and certify the quality and authenticity of economic and financial information stated in financial statements and business administration accounting reports before they are submitted for signing and approval;

3. To inspect the observance of principles on operations and business management; especially the observance of law, policies, financial and accounting regimes of the State as well as the resolutions and decisions of the Managing Board and the Directorate of the enterprise;

4. To detect loopholes, weaknesses and frauds in the management and protection of the enterprise's assets; to propose ways to improve and perfect the management and business control system of the enterprise.

Article 7.- Upon the completion of an audit, the internal auditor(s) shall have to make an audit report, proposing solutions and measures for handling violations (if any). The internal audit report shall be forwarded to the Managing Board and the Directorate and presented before the Congress of workers and employees of the enterprise or the shareholders' Congress. The annual financial statements of the enterprise must be attached with the internal audit report.

Chapter II

PROVISIONS ON THE CONTENTS, ORDER AND METHODS OF INTERNAL AUDIT

Article 9.- Contents of an internal audit

1. Auditing operations:

- Inspecting the mobilization, distribution and economical and effective use of resources (including human resources, materials, goods, properties, ital..., and business advantages...)... of the enterprise;

- Inspecting the efficiency of production and business activities; the distribution and use of incomes; the results of ital preservation and development;

- Inspecting and assessing the efficiency of operations of the functional departments in achieving the enterprise's business objectives.

2. Auditing the law observance

- Inspecting the observance of law, policies, financial and accounting regimes and the management regime of the State, as well as the execution of policies, resolutions, decisions and regulations of the Managing Board and the Directorate;

- Inspecting the observance of the provisions on principles, professional rules and order and managerial procedures related to the entire or each part of the working process and each measure in the internal control system;

- Inspecting the observance of the accounting principles, policies and standards, from the making of vouchers, the application of the accounting system, the recording of accounts, the summing-up of information and the presentation of financial statements and business administration accounting reports to the archive of accounting books...

3. Auditing financial statements and business administration accounting reports

- Inspecting and certifying the timeliness, adequacy, objectiveness and authenticity of financial statements and business administration accounting reports before they are signed for approval and promulgation by the (General) Director;

- Inspecting and assessing financial statements and business administration accounting reports; making necessary proposals and providing consultancy regarding production and business activities so as to ensure their rationality and efficiency.

Article 10.- Implementation order and steps of an internal audit

1. Drawing up plan and selecting auditing method

- Drawing up a plan and program, determining the objective(s), contents, scope and time for the internal audit;

- Defining the scope of the internal audit; the method and mode of auditing and measures for organization of implementation; organizing auditing forces (including auditors inside and outside the enterprise and experts to be mobilized).

2. Preparation for the audit

- Studying legal documents and materials related to business situation of the enterprise, the projected tasks, conditions, measures, policies and regulations of the enterprise set in the business cycle subject to the audit. Preliminarily assessing the changes in the business conditions and environment that affect the enterprise's operation in various aspects;

- Studying new policies, regulations, undertakings and measures arising in accounting and auditing work;

- Considering the previous audit reports, materials and files (if any), including materials outside the enterprise but related to the audit; summarizing information that should be examined in the subsequent audit; collecting and preparing forms, programs and guidances for the to-be-conducted audit.

3. Conducting the audit:

- During the audit, the internal auditors shall have to consider, collect and assess all necessary related evidences, including evidences outside the enterprise...;

- Considering and assessing the implementation of policies and regulations during the practical operations of the enterprise.

- Assessing the possibility of making errors, mistakes and frauds in each kind of professional transaction and each economic activity. Assessing the importance and risks of professional transactions arising within the enterprise.

- Analyzing and surveying main items, additionally surveying details; considering the subsequent events, evaluating the audit's results.

- The implementation steps of an audit must comply with the audit procedures and be recorded in the audit documents and files.

4. Completion of the audit

4.1. Upon the completion of the audit :

The internal auditor(s) shall have to make an audit report;

The audit report must present all contents and results of the audit according to the set objectives and requirements; certify the adequacy and rationality of the annual financial statements and business administration accounting reports before they are submitted for signing and approval; propose resolutions and measures for handling errors, frauds and violations, as well as necessary solutions to raise the quality and efficiency of business management of the enterprise;

The audit report shall be sent to the Chairman of the Managing Board and the (General) Director of the enterprise. The circulation and promulgation of the internal audit report shall depend on the nature of the audit and be decided by the Chairman of the Managing Board and the (General) Director. As for reports on the auditing of financial statements and business administration accounting reports, they must be attached to the financial statements and business administration accounting reports before circulation.

4.2. Re-examination of audit results is a work following the audit, aimed at reviewing the implementation of the proposals, handling measures and solutions mentioned in the report on audit at managerial and business department of the enterprise.

Article 11.- Methods of conducting an internal audit

Depending on the nature of the audit, the auditors shall have to select and apply auditing methods and procedures suited to the objectives and requirements of the audit. The selected and applied auditing procedures and methods include observation, actual inventory, certification, consideration; comparison of legal documents, materials, regimes and law; collection and evaluation of evidences; calculation, comparison, analysis and examination on computers; summing-up, selection of information, determination of causes and the extent of their respective involvement; prediction and forecast of trends and possibilities; and other steps of inspection and assessment which the auditors deem necessary to be taken for each specific case.

Chapter III

INTERNAL AUDITORS

Article 12.- A person appointed or assigned to work as an internal auditor shall have to meet the following criteria:

1. Being honest and objective, having no criminal records, having not yet been disciplined at the warning or higher level for his/her errors in economic, financial and accounting management;

2. Being a university graduate of economic, financial, accountancy or business administration speciality;

3. Having worked in the field of financial or accounting management for 5 years or more, with at least 3 years working at the enterprise where he/she is assigned to work as an auditor.

4. Having been trained in auditing professionalism and internal audit under the uniform program of the Ministry of Finance, and got certificate thereof.

Article 13.- Appointment, dismissal of internal auditor(s)

An internal auditor shall be appointed and dismissed directly by the General Director or Director of the enterprise. The internal auditor who has been dismissed for his/her violation of discipline shall not be re-appointed.

The auditor shall not be allowed to assume any executive or business administration responsibility at the enterprise.

Article 14.- Responsibilities of the internal auditor

1. An internal auditor shall perform tasks according to the auditing plan already ratified by the General Director or the Director and shall take responsibility before the (General) Director for the quality, accuracy and rationality of the audit report as well as the audited financial and accounting information.

2. While performing his/her tasks, the internal auditor shall have to observe law, auditing principles and criteria, as well as current policies and regulations of the State.

3. The auditor must be objective and independent in auditing activities. He/she shall have to constantly improve his/her professional skills, update knowledge and follow the occupational morality.

4. Observing principles on keeping secret the audited data and documents (except for cases of requests by the court or the obligations related to professional criteria).

Article 15.- Powers of the internal auditor

1. To be professionally independent. Not submit to any control or interference when carrying out auditing activities and presenting his/her opinions in the audit report.

2. To be entitled to request the departments and/or individuals subject to the audit as well as the relevant sections to provide information and materials for the audit.

3. To be entitled to sign for certification the report on internal audit conducted by individual(s) or take responsibility for the performance of the assigned auditing tasks.

4. To make suggestions, solutions, proposals and advice on improving and perfecting the production and business control and management; to prevent errors, frauds, wrong doings in the enterprise...

5. To reserve his/her own opinions already presented in the internal audit report; to be entitled to propose the functional State agency to reconsider the decision of the (General) Director on his/her dismissal.

Chapter IV

ORGANIZATION OF INTERNAL AUDITING APPARATUS

Article 16.- Internal auditing apparatus

1. Enterprises shall have to organize their own internal auditing apparatuses to conduct internal audits therein. An enterprise's internal auditing apparatus shall be organized into a section, department, or group, working team directly under the (General) Director of the enterprise.

The internal auditing apparatus is composed of: the head and deputy-head (if any) of the internal auditing section, the head of the internal auditing group and internal auditors. The number of internal auditors shall depend on the enterprise's business scale, area of operations, and number of member units, on the complexity of the audit, the business management requirements and the auditors' professional qualifications and abilities.

In production conglomerates (corporations, unions of enterprises...), the internal auditing sections (departments) must have enough personnel and abilities to conduct audit within the units and member units.

2. The internal auditing section shall be organized independently from the business administration and management sections of the enterprise (including finance-accountancy section); and subject to the direction and management by the (General) Director of the enterprise.

At the request of the internal auditing section, the (General) Director may appoint specialists on various professional fields of the enterprise or hire specialists from outside (if necessary) to take part in some or all contents of the audit.

Article 17.- Head of the internal auditing section

An internal auditing section(department) of an enterprise is led by the section head.

The head of the internal auditing section (department) shall be appointed by the (General) Director after obtaining a written consent from the General Department and the Department for the Management of the State's ital and Properties at Enterprise (under the Ministry of Finance).

The head of the internal auditing section (department) shall sign and take responsibility before the (General) Director and before law for internal audit reports.

The head of the internal auditing section shall have the following tasks and powers:

1. To take initiative in working out the annual auditing plans and programs.

2. To organize internal audits within the enterprise according to the auditing plans and programs already ratified by the (General) Director.

3. To manage, arrange and assign tasks to the auditors and take measures for training and fostering auditors, thus constantly raising the professional skills and abilities of the auditors and the internal auditing apparatus.

4. To propose the (General) Director to promote, appoint, reward or discipline internal auditors.

5. To propose the mobilization of auditors from member units or experts from the concerned sections in the enterprise to take part in audits when necessary.

6. To propose changes of policies and lines with a view to raising the efficiency of the business management and control.

7. To report any detected violation of law or any decision contrary to the undertakings, policies and regulations, to the competent levels for solutions and prompt settlement.

Article 18.- The internal auditing apparatus at an enterprise having attached units:

- For member units of a corporation or union of enterprises with independent legal person status: They must organize independent auditing sections or appoint a number of internal auditors to perform the internal audit.

- For attached or dependent member enterprises without legal person status: Depending on their business scales and areas of operations, auditors may be appointed to work directly in such attached or dependent units.

Internal auditors working in member enterprises with independent legal person status or without independent legal person status shall be directly or indirectly attached to the internal auditing apparatus of higher-level units and submit to the General Director's or Director's direction.

Chapter V

ORGANIZATION OF IMPLEMENTATION

Article 19.- This Regulation takes effect from January 1st, 1998.

Basing themselves on this Regulation, the State corporations shall organize internal audit in their respective corporation and each of their member enterprises.

In the course of organization of implementation, any problem or difficulty should be reported to the Ministry of Finance for uniform settlement. Any issue considered inappropriate shall be promptly reported to the Ministry of Finance for study, amendment and supplement.-

For the Ministry of Finance

Vice Minister

VU MONG GIAO