DECISION No. 121/2005/QD-NHNN OF FEBRUARY 2, 2005 ISSUING THE REGULATION ON INDEPENDENT AUDIT OF CREDIT INSTITUTIONS
THE STATE BANK GOVERNOR
Pursuant to the Vietnam State Bank Law and the Credit Institutions Law of December 12, 1997;
Pursuant to the June 17, 2003 Law Amending and Supplementing a Number of Articles of the Vietnam State Bank Law; and the June 15, 2004 Law Amending and Supplementing a Number of Articles of the Credit Institutions Law;
Pursuant to the Government’s Decree No. 86/2002/ND-CP of November 15, 2002 defining the tasks, powers and State management responsibilities of the ministries and ministerial-level agencies;
Pursuant to the Government’s Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit;
At the proposal of the director of the Department for Banks and Non- Bank Credit Institutions,
DECIDES:
Article 1.- To issue together with this Decision the Regulation on independent audit of credit institutions.
Article 2.- This Decision takes effect 15 days after its publication in the Official Gazette and replaces the State Bank Governor’s Decision No. 322/1999/QD-NHNN5 of September 14, 1999 issuing the Regulation on independent audit of credit institutions; Decision No. 499/2000/NHNN5 of December 5, 2000 amending and supplementing a number of articles of the Regulation on independent audit of credit institutions, issued together with Decision No. 322/1999/QD-NHNN5 of September 14, 1999.
Article 3.- The director of the Office, the director of the Department for Banks and Non-Bank Credit Institutions, the chief inspector, of the State Bank; the heads of the concerned units under Vietnam State Bank; the directors of the State Bank’s provincial/municipal branches, and credit institutions shall have to implement this Decision.
For the State Bank Governor
Deputy Governor
TRAN MINH TUAN
REGULATION ON INDEPENDENT AUDIT OF CREDIT INSTITUTIONS
(Issued together with the State Bank Governor’s Decision No. 121/2005/QD-NHNN of February 2, 2005)
Chapter I
GENERAL PROVISIONS
Article 1.- Subjects of application
This Regulation provides for independent audit of credit institutions licensed to operate in Vietnam (called credit institutions for short), including:
1. State-owned credit institutions (except the Social Policy Bank).
2. Joint-stock credit institutions.
3. Joint-venture credit institutions.
4. The Central People’s Credit Fund.
5. Credit institutions with 100% foreign capital.
6. Branches of foreign banks.
Article 2.- Scope of audit:
1. The annual financial statements of credit institutions defined in Article 1 of this Regulation must be audited by an independent audit enterprise, which fully meets the criteria and conditions prescribed by Vietnam State Bank.
2. Vietnam State Bank requests credit institutions to use one or a number of audit services (operation audit, compliance audit) when deeming it necessary in one of the following cases:
a/ The credit institutions are in danger of falling in the special control state.
b/ The credit institutions are being considered for recognition as having come out of the special control state.
c/ Before the credit institutions are listed and issue shares for the first time to the public at the Securities Trading Centers or Stock Exchange.
d/ The credit institutions are merged, sold or consolidated.
e/ Other cases as decided by Vietnam State Bank.
Chapter II
SPECIFIC PROVISIONS
Article 3.- The annual financial statements of credit institutions which must be audited include:
1. Balance sheets.
2. Business result reports.
3. Cash flow reports.
4. Written explanations about financial statements.
Article 4.- Results of independent audit
1. The results of independent audit of credit institutions are reflected in form of audit reports and management letters enclosed with relevant documents and evidences.
2. Reports on the audit of credit institutions must comply with the provisions of the Government’s Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit and Vietnam auditing standards (or international auditing standards recognized in Vietnam) as well as Vietnam’s current law provisions on independent audit of credit institutions.
3. Management letters are used by practicing auditors and audit enterprises to present specific issues and events in the auditing process, including the actual situation, potential risks, auditors’ proposals, opinions of managers of audited credit institutions related to such events. A management letter must cover the following principal contents:
a/ The general audit approach and scope, and requirements for addition.
b/ The assessment of important changes in policies and audit practices that affect financial statements of the credit institution.
c/ The risks that may substantially affect financial statements of the credit institution.
d/ The major errors and weaknesses of the internal inspection and control system of the credit institution, the doubts about the honesty of managers and fraudulent acts of officials and employees of the credit institution.
e/ The audit enterprise’s and auditors’ suggestions for adjustments related to the cases or events (already accounted or not yet accounted by the credit institution) that have substantially affected or may substantially affect financial statements of such credit institution.
f/ The opinions different from those of the leadership of the credit institution regarding issues that may substantially affect financial statements or opinions of the auditors and audit enterprise. The auditors and audit enterprise should describe clearly the situation on settlement of such divergent opinions and the extent of their effects.
g/ Other issues as already agreed upon in the audit contract.
4. The documents and evidences related to practicing auditors and audit enterprises’ comments, conclusions or proposals in audit reports and management letters regarding errors, violations or risks as well as opinions of internal controllers of audited credit institutions must accompany audit reports and management letters.
Article 5.- Criteria and conditions for selection of audit enterprises to audit credit institutions
Apart from complying with the provisions of the Government’s Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit and the Finance Ministry’s Circular No. 64/2004/TT-BTC of June 29, 2004 guiding a number of articles of Decree No. 105/2004/ND-CP of March 30, 2004, audit enterprises shall have to meet the following conditions:
1. Having charter capital or own capital of VND 3 billion or more, for domestic audit enterprises; and having charter capital of at least USD 300,000, for foreign-invested audit enterprises.
2. Having 10 practicing auditors or more. Arranging at least three practicing auditors to audit a credit institution.
3. The practicing auditors and representative of the leadership of an audit enterprise involved in the audit of a credit institution must fully meet the criteria and conditions mentioned in Article 6 of this Regulation.
4. Having been established and conducted auditing operations in Vietnam for at least three years.
5. Having no such economic relations as purchasing bonds or assets from, pulling capital, entering into joint venture or jointly contributing stocks with the audited credit institutions, or vice versa.
6. Being not customers enjoying preferential treatment (such as being granted credits or guarantees without security, being granted credits with preferential conditions) by the audited credit institutions.
7. Sharing with an audited credit institution no common owner that owns 5% or more of the own capital of each party.
8. Neither providing nor having provided in the preceding year services of accounting-book entry, making financial statements, internal audit, asset evaluation, management consultancy or financial consultancy for the same credit institution.
9. Being not on Vietnam State Bank’s list of audit enterprises not allowed to audit credit institutions, as provided for in Clause 2c, Article 9 of this Regulation.
Article 6.- Criteria, conditions for practicing auditors and representatives of the leadership of audit enterprises involved in the audit of credit institutions
Apart from complying with the provisions of the Government’s Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit and the Finance Ministry’s Circular No. 64/2004/TT-BTC of June 29, 2004 guiding the implementation of a number of articles of Decree No. 105/2004/ND-CP of March 30, 2004, practicing auditors and representatives of the leadership of audit enterprises shall have to meet the following conditions:
1. Being named in the list of audit practitioners certified by the Finance Ministry.
2. Having at least two years’ auditing experiences, counting from the date of grant of auditor’s certificates, if they are Vietnamese.
3. Having experiences of practicing as auditors for at least two years in Vietnam, if they are foreigners.
4. Being neither shareholders nor lawful representatives of shareholders with the right to vote at Shareholders’ General Assemblies of the audited credit institutions.
5. Being neither Control Board members, general directors (directors), deputy general directors (deputy directors) nor chief accountants of the audited credit institutions.
6. Being not customers enjoying preferential treatment (such as being granted credits or guarantees without security, being granted credits with preferential conditions) by the audited credit institutions.
7. Having no blood relations (being parents, spouses, children or siblings) with members of the Managing Boards or the Control Boards, the general directors (directors), deputy-general directors (deputy directors) or chief accountants of the audited credit institutions.
Article 7.- Obligations and responsibilities of audit enterprises and practicing auditors
1. To firmly grasp the provisions of law related to financial statements of credit institutions.
2. To explain or supply information and data related to audit activities at the request of Vietnam State Bank in case of complaint.
3. In the auditing process, if detecting that the audited credit institutions fail to comply with law and regulations related to the audited financial statements, to notify and propose such credit institutions to take measures to prevent, redress or handle violations; to write their opinions in the audit reports or management letters as required in Clauses 2 and 3, Article 4 of this Regulation.
4. After publicizing audit reports, if suspecting or detecting that the audited credit institutions have committed material errors or violations due to their non-observance of laws and regulations related to the audited financial statements, the concerned audit enterprises must carry out procedures to notify such to the audited units and a third person as prescribed by the auditing standards, and to Vietnam State Bank as well.
5. To keep secret information according to law provisions on audit.
6. To perform other obligations and responsi-bilities prescribed by law.
Article 8.- Obligations and responsibilities of the audited credit institutions
1. At least 30 days before the end of a fiscal year, to select audit enterprises and practicing auditors that fully meet the criteria and conditions under this Regulation. The selection of audit enterprises to audit credit institutions shall comply with law provisions on bidding.
2. To provide in full and on time accurate information necessary for the audit at the requests of audit enterprises and practicing auditors.
3. Within 120 days after the end of the fiscal year, to send the results of independent audit, including the audit reports and management letters, together with relevant documents and evidences to Vietnam State Bank, concretely:
a/ 02 copies of the report on the results of independent audit, to Vietnam State Bank (the Inspectorate and the Department for Banks or the Department for Cooperative Credit Institutions, with regard to reports of the Central People’s Credit Fund).
b/ Particularly, joint-stock credit institutions shall each have to send one more copy of the report on the results of independent audit to the State Bank’s branches of the provinces or centrally-run cities where they are headquartered.
4. To promptly report, explain and propose Vietnam State Bank to consider and handle according to law provisions the cases of:
a/ Failure to send on time the results of independent audit.
b/ Disparities or disputes over the results of independent audit.
5. To follow the deadline for sending the results of independent audit strictly according to the provisions of Clause 3 of this Article and publicize financial information strictly according to current regulations. The publicization of financial information of credit institutions in cases where such credit institutions and audit enterprises have not yet resolved their disparities of or disputes over the audit results shall be decided by Vietnam State Bank.
Article 9.- Responsibilities of the State Bank’s provincial/municipal branches and inspectorate
1. The State Bank’s provincial/municipal branches:
Within 30 working days after receiving reports on the results of independent audit or reports of joint-stock credit institutions, basing themselves on the auditing standards and results of remote supervision, inspection and examination results and other documents (if any), to consider and send to Vietnam State Bank (the Inspectorate and the Department for Banks) documents:
a/ Reporting on the exploitation and processing of the results of independent audit of credit institutions.
b/ Suggesting the handling of cases mentioned in Clause 4, Article 8 of this Regulation.
c/ Proposing the State Bank of Vietnam to list those audit enterprises not allowed to audit credit institutions in the subsequent year; and requesting joint-stock credit institutions to provide one or a number of audit services according to the provisions of Clause 2, Article 2 of this Regulation or to restart the independent audit when deeming it necessary.
2. The State Bank’s Inspectorate:
a/ Based on the compliance with this Regulation, the auditing standards, the results of remote supervision, the inspection and examination results and other documents (if any) as well as proposals of the State Bank’s provincial/municipal branches (for joint-stock credit institutions):
- To exploit and process the results of independent audit of credit institutions;
- To report to and propose the State Bank Governor to consider and handle cases mentioned in Clause 4, Article 8 of this Regulation;
- To administratively sanction credit institutions for acts of violating the regulations on independent audit prescribed herein and other relevant law provisions;
- To submit to the State Bank Governor for adoption a list of audit enterprises not allowed to audit credit institutions in the subsequent year; to request credit institutions to provide one or a number of audit services according to the provisions of Clause 2, Article 2 of this Regulation or to restart the independent audit when deeming it necessary.
b/ To give its professional comments on monetary or banking issues in audit reports and management letters of credit institutions, when so requested by legal agencies.
c/ Before September 30 annually, to send written notices on the list of audit enterprises not permitted to audit credit institutions in the subsequent year, which has been approved by the State Bank Governor to credit institutions and audit enterprises so that the latter may be aware thereof and follow (if they have to).
Article 10.- The resolution of disparities of or disputes over the results of independent audit between audited credit institutions and audit enterprises shall comply with the provisions of Article 35 of the Government’s Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit and relevant legal documents.
For the State Bank Governor
Deputy Governor
TRAN MINH TUAN