Staff at a state audit agency. The Ministry of Finance has proposed significant amendments to the Law on Independent Audit and several related laws to enhance transparency and fairness in the financial market — VNA/VNS Photo

The Ministry of Finance has proposed significant amendments to the Law on Independent Audit and several related laws, including the Securities Law and the Accounting Law.

These changes aim to address shortcomings that have surfaced over the 12 years since the Law on Independent Audit was enacted.

The proposed revisions seek to enhance transparency and fairness in the financial market, particularly by tightening the auditing requirements for larger companies.

Since its implementation on January 1, 2012, the law has exposed several shortcomings. The Ministry of Finance has pointed out that the existing regulatory framework for monitoring auditors and auditing services is ineffective. Penalties for non-compliance are currently inadequate and fail to act as a strong deterrent.

"The supervising agency can't impose fines and the penalty period for independent auditing is just one year. As a result, some violations can't be punished because the time limit has passed," the Ministry of Finance said in the proposal.

The ministry also pointed out another significant concern is that the current law does not encompass all entities that should be subject to mandatory audits. Large companies with complex financial transactions and substantial economic impact are not always required to undergo annual financial audits.

With recent high-profile cases of corporate misconduct highlighting the need for greater financial transparency, it has become clear that expanding the scope of mandatory audits is essential, it said, affirming this change aims to ensure that all significant economic players are held accountable, thereby improving oversight and ensuring accurate tax contributions.

Fines to increase 30-fold

The proposed amendments focus on three primary areas.

First, there needs a push to increase the effectiveness and scope of penalties for auditing violations. The Ministry of Finance has recommended extending the statute of limitations for imposing penalties from one year to ten years. This change aims to ensure that violations are addressed even if they are discovered long after they occur.

Additionally, the draft amendments propose significantly higher fines of up to VNĐ3 billion (US$118,110) for organisations and VNĐ1.5 billion for individuals, which is thirty times the current limit. Beyond monetary fines, violators could face other serious consequences, including the revocation of business licences and auditor certifications.

The second key policy proposal involves enhancing the quality of auditing services.

This includes updating regulations concerning auditor rotations and introducing new requirements for the number of practising auditors at both local and foreign auditing firms operating in Việt Nam.

For example, auditors who have served a particular client for five consecutive years would be required to refrain from working with that client for the subsequent five years. This measure aims to prevent conflicts of interest and ensure a fresh perspective in auditing practices.

The third policy focuses on improving the transparency of financial information.

The Ministry of Finance proposes expanding the list of entities required to undergo mandatory audits to include larger companies and organisations that play a significant role in the economy.

This expansion is intended to align with the Government's strategic goals for accounting and auditing through 2023 and beyond. The new regulations would require the Government to establish specific standards and procedures for approving or revoking the status of auditing firms and individual auditors, especially those working with public-interest entities. — VNS