VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 220
QUALITY CONTROL OF AUDITING ACTIVITIES
(Issued in pursuance of the Finance Minister’s Decision No. 28/2003/QD-BTC dated 14 March 2003)
GENERAL PROVISIONS
01. The purpose of this standard is to prescribe the basic principles and procedures and guide the application thereof to the quality control of audit work in the following aspects:
a/ The audit firms’ policies and procedures relating to auditing activities;
b/ Procedures relating to the work assigned to auditors and audit assistants in specific audits.
02. Auditors and audit firms must implement quality control policies and procedures for all auditing activities of audit firms and for each audit.
03. This standard shall apply to the audit of financial statements and also to the audit of other financial information and related services of audit firms.
Auditors and audit firms must comply with the provisions of this standard in the process of auditing and providing related services.
The audited units (clients) and the users of audit results must possess necessary knowledge of the principles and procedures prescribed in this standard so as to fulfil their duties and cooperate with auditors and audit firms in dealing with relationships in the auditing process.
The terms in this standard are construed as follows:
04. Audit firm means an enterprise established and operating under the law provisions on the establishment and operation of enterprises in the field of provision of independent auditing services.
05. Director (or head) of an audit firm means the highest representative at law of that audit firm, who bears the final responsibility for the audit.
06. Professional personnel means leaders of all levels, auditors, audit assistants and consultants of an audit firm.
07. Auditor means a person who possesses the auditor’s certificate granted by the Ministry of Finance, has made practice registration with an independent audit firm, participates in the auditing process, may sign the auditing reports and bears responsibility for the audit before law and the director of the audit firm.
08. Audit assistant means a person who participates in the auditing process but is not permitted to sign the auditing reports.
09. Quality of auditing activities means the degree of satisfaction of the users of audit results in terms of objectivity and reliability of the audit opinions of auditors; and also satisfaction of the audited units’ expectations of the auditors’ opinions in order to improve the business efficiency within a pre-determined period and with reasonable charges.
CONTENTS OF THE STANDARD
Audit firms
10. Audit firms must establish and implement quality control policies and procedures with a view to ensuring that all audits are conducted in accordance with the Vietnamese auditing standards or international auditing standards accepted by Vietnam so as to constantly improve the quality of audits.
11. The contents, timetable and scope of an audit firm’s quality control policies and procedures depend on a number of factors such as the size and nature of its operation, geographical area of operation, organizational structure and cost and benefit considerations. The quality control policies and procedures adopted by individual firms may vary but must comply with this standard’s provisions on the quality control of auditing activities.
Examples of quality control policies and procedures are presented in Appendix No. 01.
12. In order to achieve the objectives of quality control of auditing activities, the audit firms normally apply the following policies in combination:
a/ Compliance with principles on professional ethics
Professional personnel of audit firms must adhere to the audit profession’s principles on ethics of the audit profession, including independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.
b/ Professional skills and competence
Professional personnel of audit firms must possess professional skills and competence, regularly maintain, update and raise their knowledge so as to fulfil their assigned tasks.
c/ Assignment
Audit work must be assigned to trained professional personnel who have adequate professional skills and competence meeting the practical requirements.
d/ Guidance and supervision
The audit work must be adequately guided and supervised for personnel at all levels to secure that it has been conducted in accordance with the auditing standards and relevant regulations.
e/ Consultation
When necessary, auditors and audit firms must consult with experts inside or outside the firms.
f/ Retention and acceptance of clients
In the process of retaining existing clients and evaluating potential ones, the audit firms must take into consideration their independence and ability to serve clients as well as the integrity of the clients’ management boards.
g/ Examination
The audit firms must regularly monitor and examine the adequacy and efficiency in the process of implementing their policies and procedures for quality control of their auditing activities.
13. The audit firms’ policies and procedures for quality control of their auditing activities must be communicated to all of their personnel so that they can be fully understood and implemented.
Individual audit contracts
14. Auditors and audit assistants must apply their firms’ quality control policies and procedures to each audit contract in an appropriate manner.
15. Auditors shall have to consider the professional capability of audit assistants performing the work assigned to them so as to provide guidance, supervision and examination appropriate to each audit assistant.
16. When assigning work to audit assistants, it must be ensured that such work is assigned to persons with adequate professional capability as required.
Guidance
17. Auditors must guide audit assistants on the necessary contents relating to each audit such as their responsibilities for the assigned work, the objectives of the procedures they are to perform, characteristics and nature of the clients’ production and business activities as well as accounting or auditing matters that may affect the contents, time table and scope of auditing procedures which they are performing.
18. The overall audit plans and the audit programs shall serve as an important tool for guiding auditors and audit assistants to perform the audit procedures.
Supervision
19. Supervision is closely related to guidance and examine and may involve both of these elements.
20. The audit firms’ personnel assigned to supervise the quality of an audit must perform the following functions:
a/ Supervising the auditing process so as to determine whether or not:
- Auditors and audit assistants have adequate professional skills and capability needed to fulfil their assigned tasks;
- Audit assistants understand the audit guidelines;
- The audit work is being conducted according to the overall audit plan and the audit program;
b/ Grasping and identifying important accounting and auditing questions arising in the auditing process so as to adjust the overall audit plan and the audit program appropriately;
c/ Handling the difference of professional opinions between auditors and audit assistants jointly participating in the audits and considering whether consultation with experts is needed or not.
21. The persons assigned to supervise the quality of audits must perform the following responsibilities:
a/ If detecting that auditors and/or audit assistants breach the audit profession’s ethics or show signs of colluding with clients to distort financial statements, to report such to competent persons for handling;
b/ If deeming that auditors or audit assistants fail to have the required professional skills and competence for carrying out the audits, to propose competent persons to replace such auditors and/or audit assistants so as to ensure the quality of the audits according to the set overall audit plans and audit programs.
Examination
22. The work performed by the auditors and audit assistants must be examined by persons having equal or higher professional capability in order to determine whether or not:
a/ The work has been performed in accordance with the audit program;
b/ The work performed and the results obtained have been fully documented into audit dossiers;
c/ All important audit matters have been settled or reflected in audit conclusions;
d/ The objectives of the audit procedures have been achieved;
e/ The conclusions made in the auditing process are consistent with the results of the work performed and support the audit opinions.
23. Auditors and audit firms must regularly examine the following:
a/ The implementation of the overall audit plan and the audit program;
b/ The assessments of inherent and control risks, including the results of tests of control and the modifications (if any) made to the overall audit plan and the audit program;
c/ The documentation in audit dossiers of the obtained audit evidences, including consultants’ opinions, and the conclusions drawn from the basic tests;
d/ Financial statements, proposed amendments thereto and draft auditing reports.
24. When examining the quality of audits, especially big and complicated audit contracts, professional personnel outside the audit teams may be requested to carry out certain additional procedures before the issuance of the auditors’ report.
25. Where there still exist divergent opinions on the quality of an audit, the audit team should discuss collectively so as to reach agreement on the evaluation thereof and draw experiences. If the audit team fail to reach agreement, such should be reported to the director for handling or presented at a meeting of the firm’s key members.
APPENDIX 01
EXAMPLE OF THE POLICIES AND PROCEDURES FOR QUALITY CONTROL OF AUDITING ACTIVITIES OF AUDIT FIRMS
A. COMPLIANCE WITH THE PRINCIPLES ON PROFESSIONAL ETHICS
Policy
All professional personnel of audit firms must adhere to the principles on ethics of the audit profession, including independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.
Procedures
1. Assigning an individual or group to guide and settle questions regarding independence, integrity, objectivity and confidentiality.
a/ Identifying cases where matters regarding independence, integrity, objectivity and confidentiality should be represented in writing;
b/ Consulting with experts or competent persons, when necessary.
2. Disseminating policies and procedures regarding independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and professional standards to all professional personnel of the firms.
a/ Informing them of the policies and procedures and requesting them to firmly grasp these policies and procedures;
b/ Emphasizing independence and professional behavior in the training programs and the process of guiding, supervising and examining audits;
c/ Informing them on a regular and timely basis of the list of clients to which independence policies apply.
- The list of clients to whom the firms must apply independence, including clients’ affiliates, parent companies, joint-venture companies and associated companies;
- Notifying such list to all professional personnel in the firms so that they can determine their independence;
- Establishing procedures for notification of changes in the list.
3. Monitor and examine the implementation of policies and procedures related to the adherence to the principles on professional ethics: independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.
a/ Annually requesting professional personnel to submit written representations stating that:
- They have firmly grasped the firms’ policies and procedures;
- They have no prohibited investments at present and in the year when financial statements are audited;
- Relationships and transactions prohibited by the firms are not established.
b/ Assigning a person or group with competence to check the completeness of dossiers on independence compliance and to deal with exceptional cases.
c/ Periodically reviewing the relationships between the firms and clients regarding matters which may affect the audit firms’ independence.
B. PROFESSIONAL SKILLS AND COMPETENCE
Policy
Professional personnel of audit firms must possess professional skills and competence, continuously maintain, update and raise their knowledge so as to accomplish their assigned tasks.
Procedures
Recruitment:
1. Audit firms must maintain a process of recruiting professional personnel by planning the personnel needs, setting recruitment objectives and requirements on qualification as well as compatibility of persons who perform the recruiting function.
a/ Planning the needs of personnel in different posts and determining the recruitment objectives based on the existing number of clients, the projected growth rate and the number of personnel who may be laid off.
b/ To achieve the recruitment objectives, designing a recruitment program with the following contents:
- Identifying sources of potential personnel;
- Methods of contacting potential personnel;
- Methods of determining specific information on each potential personnel;
- Methods of attracting potential personnel and informing them of the firms;
- Methods of evaluating and selecting potential personnel so as to achieve the necessary number of applicants for selection.
c/ Informing the people related to the recruitment of the firms’ personnel needs and recruitment objectives.
d/ Assigning competent persons to decide on the recruitment.
e/ Checking the effectiveness of the recruitment program:
- Periodically evaluating the recruitment program to determine whether or not the firms have complied with policies and procedures for recruiting qualified personnel;
- Periodically reviewing the recruitment results to determine whether or not the firms have achieved personnel recruitment objectives and needs.
2. Establish criteria and guidelines for evaluating applicants for each post.
a/ Identifying the attributes to be sought in the applicants, for example: intelligence, integrity, honesty, dynamism and aptitude for the profession.
b/ Identifying achievements and experiences the firms require from applicants who are new graduates or experienced ones; for example:
- Academic background;
- Personal achievements;
- Work experiences;
- Personal interests.
c/ Making written guidelines for recruiting personnel in specific cases such as:
- Recruiting relatives of the firms’ personnel, persons who have close relationships with or relatives of clients;
- Re-recruiting former employees;
- Recruiting clients’ employees;
- Recruiting employees of competing firms.
d/ Gathering basic information on the applicants’ qualifications by appropriate means, such as:
- Resumes;
- Job applications;
- Educational diplomas;
- Personal references;
- References of former agency (ies);
- Interviews…
e/ Evaluating the qualifications of new personnel, including those employed not through normal recruitment procedures (for example: those joining the firms in the capacity of supervisors, through merger or acquisition or joint ventures) to determine whether they meet the firms’ requirements or not.
3. Inform the applicants and new personnel of the firms’ policies and procedures relevant to them.
a/ Using a brochure or other means to introduce the firms to applicants and new personnel;
b/ Preparing and distributing a manual describing the firms’ policies and procedures to all personnel;
c/ Conducting an professional orientation program for new personnel.
Professional training
4. Establish guidelines and requirements for continued professional fostering and notify them to all personnel of the audit firms.
a/ Assigning a person or group the responsibility for the professional development of personnel;
b/ The firms’ training programs must be scrutinized by professionally qualified persons and they must set forth the training objectives and education and experience requirements;
c/ Setting forth orientations for the development of the firms and the profession for of new employees.
- Preparing materials on the orientation for the development of the firms and the profession in order to inform new employees of their professional responsibilities and opportunities;
- Assigning responsibility for conducting orientation workshops to introduce the professional responsibilities and the firms’ policies.
d/ Designing professional training and refresher programs for all personnel at each level in the firms:
- Taking into consideration compulsory regulations and voluntary guidelines of laws and professional organizations when designing professional training and refresher programs;
- Encouraging participation in professional training programs outside the firms, including the form of self-study;
- Encouraging participation in professional associations and determining whether the firms would pay the whole or part of expenses;
- Encouraging personnel to serve on professional boards of professional associations, write articles, books and participate in other professional activities.
e/ Periodically examining professional training programs and archiving dossiers on the training situation of the entire firms and each individual.
- Periodically reviewing the participation of each employee in the training program so as to determine his/her compliance with the firms’ requirements;
- Periodically examining the evaluation reports and other records regarding the advanced training programs to evaluate whether or not these programs are effective and have achieved the firms’ objectives. Considering the needs for new programs and for revision of on-going programs or elimination of ineffective training programs.
5. Provide in time all personnel with information on professional technical standards and materials containing the firms’ technical policies and procedures. Encourage them to engage in self-development activities.
a/ Providing all personnel with professional technical materials, even those on changes, including:
- National and international specialized materials on accounting and auditing;
- Documents on current laws in specific domains, for employees who take charge of such domains;
- Materials on the firms’ technical and professional policies and procedures.
b/ For training programs designed by the firms, preparing materials and selecting instructors:
- The programs should clearly state the objectives, requirements on participants’ education and experience;
- The training course instructors must firmly grasp the program content and teaching methods;
- Asking participants to evaluate training course contents, instructors and training conditions;
- The training program must spare time for instructors to test and evaluate training course contents, teaching methods and trainees;
- The training programs must be updated to accommodate new developments and renovations, and relevant evaluation reports;
- Archiving, and creating conditions for exploiting, professional and technical materials on the firms’ regulations relating to professional technical matters.
6. In order to train a contingent of experts in specialized domains and branches, the firms must:
a/ Organize on their own specialized training programs such as in banking auditing, computer-aided auditing, sampling methods…
b/ Encourage personnel to attend external training programs, workshops to raise their professional levels;
c/ Encourage personnel to participate in professional associations concerned with specialized domains and branches.
d/ Provide materials relating to the specialized domains and branches.
7. Audit firms must assign persons to see that all the firms’ auditors participate in annual fostering and refresher programs conducted by the Ministry of Finance or by organizations authorized by the Ministry of Finance.
Advancement opportunities:
8. Audit firms must establish criteria for each rank of employee in the forms:
a/ Regulations on responsibilities and qualifications for each rank of employees, including:
- Titles and responsibilities thereof;
- Criteria on qualification and experience (or seniority) for each title.
b/ Determining qualification criteria to be used as a basis for considering and evaluating the results of actual performance and capability of each rank, for example:
- Professional knowledge;
- Analytical and judgmental abilities;
- Communication skills;
- Training skills;
- Leadership methods;
- Client relations;
- Personal attitude and professional behavior (characters, intelligence, judgment and dynamism);
- Supervisory ability.
c/ Compiling a personal manual or other means to disseminate the firms’ advancement procedures and policies to all employees.
9. Evaluate the work performance results of all employees and notify them thereof.
a/ Gathering information on and evaluating the work performance results:
- Identifying evaluation responsibilities and requirements at each level, indicating who will make these evaluations and when the evaluation results will be presented;
- Guiding the evaluation objectives;
- Using standardized forms for evaluating work performance results by self-evaluation by employees according to such forms and review by persons with higher authority.
- Re-examining previous evaluations of each employee;
- Personnel evaluations must be done by different persons;
- Determining that evaluations are completed on schedule;
- Filing written evaluations in personal dossiers;
- Evaluations of leading officials must include consultations with their subordinates to determine whether these officials continue to have the qualifications to fulfill their responsibilities or not.
b/ Periodically informing all employees of their progress and career prospect, clearly stating:
- Performance results;
- Personal and career prospects;
- Advancement opportunities of each person.
c/ Periodically promoting personnel on the basis of the evaluation results.
C. ASSIGNMENT
Policy
Audit work must be assigned to trained professional personnel who have adequate professional skills and competence to satisfy the practical requirements.
Procedures
1. Assign work to personnel:
a/ Planning the personnel needs for each of the firm’s divisions;
b/ Determining the personnel need for each specific audit contract;
c/ Arranging personnel and allocating time for each audit contract;
d/ When assigning work to employees, the following factors must be considered:
- Auditing size and complexity;
- Number of existing personnel;
- Special capability and expertise required;
- Schedule of the work to be performed;
- Continuity and rotation of personnel;
- Prospect of on-the-job training.
2. Assign work to a person or group in a specific audit.
a/ Persons with responsibility for work assignment must consider the following factors:
- Staffing and timing requirements of the audit contract;
- Qualifications, experiences, positions, educational background and special abilities of personnel;
- The participation plans of persons assigned the supervisory responsibilities;
- Projected time required for of each individual;
- Circumstances which may affect independence, for example: assignment of work to professional personnel who have economic or kin relation with the leaderships of the audited units.
b/ When assigning work, consideration should be given to continuity and rotation to enable personnel to perform their work effectively, as well as to capabilities, qualifications and experiences of other personnel.
3. The timing and personnel plan for an audit must be approved before implementation.
D. GUIDANCE AND SUPERVISION
Policy
Audit work must be adequately guided and supervised for personnel at all levels to ensure that it has been performed in compliance with the auditing standards and relevant regulations.
Procedures
1. Procedures for planning audits
a/ Assigning responsibility for planning audits;
b/ Reviewing information obtained from previous audits and updating new information;
c/ Working out the overall audit plan and the audit program.
2. Procedures for maintaining the quality standards:
a/ Conducting supervision at all levels; considering the training process, abilities and experiences of the assigned personnel;
b/ Issuing guidelines for the forms and contents of working papers;
c/ Using appropriate standardized forms, checklists, and questionnaires to assist in the audit work;
d/ Establishing procedures for settling differences of professional judgment.
3. Provide on-the-job training in the auditing process.
a/ Regularly discussing with audit assistants the relationships between the work performed by each person and the audit as a whole and arranging assistants to participate in many portions of the audit;
b/ Incorporating the content of “personnel management skills” into the firms’ training program;
c/ Encouraging personnel to participate in the “programs on training and developing subordinates”;
d/ Monitoring the assigned work to determine whether personnel have grasped professional technical knowledge and auditing experiences in each domain or not.
E. CONSULTATION
Policy
When necessary, auditors and audit firms must consult with experts inside and outside the firms
Procedures
1. Identify domains and situations where consultation is required and encourage personnel to consult with experts and competent persons.
a/ Informing personnel of the firms’ consultation policies and procedures;
b/ Specific domains or complex professional requiring consultation, such as:
- Application of newly promulgated legal documents relating to professional technical matters;
- Business lines with special accounting, auditing and reporting requirements;
- Newly arising problems;
- Requirements of law and regulations of functional bodies, especially the requirements of international law.
c/ Maintaining the operation of the archival section and referring to web sites or other means, such as:
- Referring to materials at various sections or the firms;
- Establishing a professional manual and circulating professional instruction materials, including documents relating to particular business lines and other specialties;
- Maintaining consultation with other firms and individuals;
- Referring, when necessary, complicated problems to a group of specialists.
2. Assign persons in specialized charge and define their powers in the consultation areas.
a/ Assigning archivists to work with law agencies;
b/ Assigning personnel to monitor each particular business line;
c/ Informing all personnel of the powers of persons in specialized charge and of the procedures for dealing with divergent opinions.
3. Specify the archival of documents on the results of consultation:
+ Archival responsibility;
+ Place of archival and conditions for use of archived documents;
+ Archiving dossiers relating to the consultation results for reference and research purposes.
F. RETENTION AND ACCEPTANCE OF CLIENTS
Policy
In the process of retaining existing clients and evaluating potential clients, audit firms must consider their independence and ability to serve clients and the integrity of the clients’ management boards.
Procedures
1. Establish procedures for evaluating and accepting potential clients.
a/ Procedures for evaluating potential clients, including:
- Gathering and reviewing available documents relating to potential clients, such as financial statements and tax payment declaration forms;
- Exchanging with third parties information on potential clients, their directors (or heads) and key personnel;
- Exchanging with the previous years’ auditors on matters relating to the directorates’ honesty, on disagreements among the directorates concerning accounting policies, audit procedures or other important matters, and on the reasons for the change of auditors;
- Considering special circumstances or possible risks of contracts;
- Assessing the audit firms’ independence and ability to serve their potential clients;
- It must be determined that acceptance of clients must not violate the audit profession’s ethical principles.
b/ Assigning a person or group at appropriate management levels to evaluate information and make decisions whether to accept clients or not.
c/ Informing personnel of the firms’ policies and procedures for accepting clients.
d/ Assigning persons to inspect and supervise the observance of the firms’ policies and procedures for accepting clients.
2. Evaluate clients upon the occurrence of special events to determine whether to maintain the relationships therewith or not.
a/ Special events when clients should be evaluated include:
- The expiry of a certain period;
- A major change in one or more of the following factors:
+ The management board;
+ Directors (of heads);
+ Capital owners;
+ Legal advisers;
+ Financial status;
+ Litigation and disputes;
+ Contractual breaches;
+ Nature of the clients’ business lines.
b/ Assigning a person or group at appropriate management levels to evaluate information and make decisions whether to retain these clients or not.
c/ Informing personnel of the firms’ policies and procedures for retaining clients.
d/ Assigning persons with responsibility to examine and supervise the observance of the firms’ policies and procedures for retaining clients.
G. EXAMINATION
Policy
Audit firms must regularly monitor and examine the adequacy and effectiveness in the process of implementing the firms’ policies and procedures for controlling their operational quality.
Procedures
1. Establish the firms’ examination procedures, contents and program.
a/ Examination procedures include:
- Determining the examination objectives and working out the examination program;
- Issuing guidelines on the scope of examination and criteria for selecting contents to be examined;
- Setting the frequency and time of examination;
- Establishing procedures for settling disagreements when they arise.
b/ Setting criteria of professional qualifications and competence for selecting examiners.
c/ Conducting examination activities:
- Scrutinizing and examining the adherence to the firms’ policies and procedures for controlling the quality of audit work;
- Scrutinizing and examining the compliance with the professional standards and with the firms’ procedures for controlling quality applicable to a selected audit contract.
2. Providing for reporting on findings in the examinations to the appropriate management levels, for examining activities already implemented or planned to be implemented, and for examining the firms’ audit work quality control system.
a/ Discussing findings in the examination process with responsible persons;
b/ Discussing findings in the process of examining selected audit contracts with the firms’ persons assigned with supervisory responsibility;
c/ Reporting on general findings and specific findings of selected audit contracts and proposing to the directorates remedial measures already taken or planned to be taken;
d/ Identifying needs for modification of audit work quality control policies and procedures on the basis of the examination results and other relevant matters./.