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Tiêu đề The Independence Of Independent Auditors In Auditing Financial Statements
Trường học University of Hanoi
Chuyên ngành Auditing
Thể loại Essay
Năm xuất bản 2023
Thành phố Hanoi
Định dạng
Số trang 47
Dung lượng 491,22 KB

Cấu trúc

  • CHAPTER 1. THEORETICAL FRAMEWORK OF INDEPENDENCE AND (7)
    • 1.1. The concept of independence and the importance of independence in (7)
    • 1.2. Factors affecting independent auditor’s independence in auditing financial statements (10)
      • 1.2.1. Personal characteristics of auditors (10)
        • 1.2.1.1. Professional ethics (10)
        • 1.2.1.2. Educational qualifications (11)
        • 1.2.1.3. Professional experience (11)
      • 1.2.2. Environmental factors group in auditing (12)
        • 1.2.2.1. Audit fees (12)
        • 1.2.2.2. Non-audit service (14)
        • 1.2.2.3. Auditing business management (15)
        • 1.2.2.4. Audit Tenure (16)
        • 1.2.2.5. Scale and reputation of the auditing company (17)
        • 1.2.2.6. Legal environment and competitive environment (18)
        • 1.2.2.7. Risks of the auditing profession for auditors (18)
    • 1.3. Independence of independent auditors in financial statement audits in (19)
      • 1.3.1. Legal regulations related to auditor's independence in some countries (19)
      • 1.3.2. Some cases related to the auditor’s independence in auditing in the world. 19 (24)
  • CHAPTER 2. THE CURRENT PRACTICE OF MAINTAINING THE (30)
    • 2.1. Overview of the independent audit field and auditor’s independence in (30)
    • 2.2. Some cases related to the auditor’s independence in auditing in Vietnam (33)
    • 3.1. Assessment the practical situation related to the independence of (36)
      • 3.1.1. Advantages (36)
      • 3.1.2. Disadvantages (37)
    • 3.2. Recommendation to improve auditor’s independence in Vietnam (39)
      • 3.2.1. From the government's perspective (39)
      • 3.2.2. From the professional associations' perspective (41)
      • 3.2.3. From the auditors’ perspective (42)
      • 3.2.4. For users of Financial Statements perspective (43)

Nội dung

LIST OF ABBREVIATIONS i INTRODUCTION 1 CHAPTER 1. THEORETICAL FRAMEWORK OF INDEPENDENCE AND THE FACTORS AFFECTING THE INDEPENDENCE OF INDEPENDENT AUDITORS IN AUDITING FINANCIAL STATEMENTS 2 1.1. The concept of independence and the importance of independence in auditing 2 1.2. Factors affecting independent auditor’s independence in auditing financial statements. 5 1.2.1. Personal characteristics of auditors 5 1.2.1.1. Professional ethics 5 1.2.1.2. Educational qualifications 6 1.2.1.3. Professional experience 6 1.2.2. Environmental factors group in auditing 7 1.2.2.1. Audit fees 7 1.2.2.2. Nonaudit service 9 1.2.2.3. Auditing business management 10 1.2.2.4. Audit Tenure 11 1.2.2.5. Scale and reputation of the auditing company 12 1.2.2.6. Legal environment and competitive environment 13 1.2.2.7. Risks of the auditing profession for auditors. 13 1.3. Independence of independent auditors in financial statement audits in countries around the world. 14 1.3.1. Legal regulations related to auditors independence in some countries. 14 1.3.2. Some cases related to the auditor’s independence in auditing in the world. 19 CHAPTER 2. THE CURRENT PRACTICE OF MAINTAINING THE INDEPENDENCE OF INDEPENDENT AUDITORS IN AUDITING FINANCIAL STATEMENTS IN VIETNAM. 25 2.1. Overview of the independent audit field and auditor’s independence in auditing financial statements in Vietnam. 25 2.2. Some cases related to the auditor’s independence in auditing in Vietnam. 28 CHAPTER 3. ASSESSMENTS AND RECOMMENDATION TO IMPROVE INDEPENDENT AUDITORSS INDEPENDENCE IN VIETNAM 31 3.1. Assessment the practical situation related to the independence of independent auditors in Vietnam. 31 3.1.1. Advantages 31 3.1.2. Disadvantages 32 3.2. Recommendation to improve auditor’s independence in Vietnam. 34 3.2.1. From the governments perspective: 34 3.2.2. From the professional associations perspective: 36 3.2.3. From the auditors’ perspective: 37 3.2.4. For users of Financial Statements perspective: 38 CONCLUSION 40 REFERENCES 41

THEORETICAL FRAMEWORK OF INDEPENDENCE AND

The concept of independence and the importance of independence in

Auditor independence, as defined by Roger W Bartlett in 1993, refers to an objective mindset essential for making unbiased decisions regarding audit work and financial statements This concept emphasizes the necessity of being free from any material or psychological interests that could compromise an auditor's integrity, objectivity, and professional independence throughout the auditing process.

The independence of auditors is a crucial principle in the auditing process, ensuring the credibility and objectivity of audit reports This independence allows auditors to maintain an unbiased and impartial stance while carrying out their responsibilities, thereby enhancing the trustworthiness of their findings.

According to Generally Accepted Auditing Standards (GAAS), auditor independence is influenced by both the auditor's inherent qualities and public perception Even if an auditor's nature is unbiased, personal or economic ties with the audited entity can lead to public skepticism regarding their independence Thus, maintaining auditor independence requires not only the auditor's intrinsic qualities but also a clear demonstration of that independence To foster greater trust, it is essential to enhance public understanding of the auditor-client relationship and emphasize the importance of formal independence measures.

The International Auditing Guidelines (IAGs) from the International Federation of Accountants (IFAC) emphasize that integrity, objectivity, and independence are fundamental principles that auditors must uphold throughout the auditing process.

The IAG3 document, released in October 1980, emphasizes that auditors must uphold principles of straightforwardness, honesty, and professional integrity It stresses the importance of maintaining objectivity and avoiding bias, asserting that auditors should remain impartial and not be swayed by personal interests, as this is essential for preserving their integrity and objectivity in their work.

According to the Code of Professional Ethics for Accountants and Auditors in Vietnam, outlined in Circular No 70/2015/TT-BTC, auditors must maintain independence from the entities they audit to ensure unbiased opinions This independence encompasses both mental and visual aspects, allowing auditors to uphold integrity and objectivity The ethical code prohibits auditors from accepting engagements with entities where they have financial interests, such as share ownership or loans, and advises against relationships with companies they have personal ties to Furthermore, auditors should not provide consulting services to client entities alongside audit services to prevent conflicts of interest that could compromise their impartiality.

In 1981, DeAngelo posited that audit quality, as viewed by the market, hinges on the ability to identify and report material misstatements in financial statements This detection capability is contingent upon auditors' competence, which includes their knowledge and experience in recognizing errors Conversely, the reporting of these misstatements is fundamentally linked to the auditors' independence from the entity being audited Thus, while competence is essential, independence is deemed sufficient for ensuring audit quality.

4 to ensure audit quality Auditor independence is of great importance in auditing because it ensures the value of the audit as following:

Independence is crucial for auditors as it guarantees objectivity and impartiality in evaluating an organization’s financial statements This unbiased stance allows auditors to deliver an accurate and fair opinion on the financial information, free from any external influence or bias.

The credibility and trustworthiness of financial statements are significantly influenced by the independence of auditors Investors, lenders, and shareholders depend on audited financial statements for informed decision-making Independent auditors provide assurance that enhances the credibility of financial information, thereby increasing stakeholders' trust in the organization.

Independent auditors play a vital role in identifying errors and fraud within financial records Their objective viewpoint enables them to meticulously review financial statements, uncovering any irregularities or misstatements that could signify fraudulent activities or intentional manipulation of data.

Auditors play a crucial role in ensuring adherence to relevant accounting standards and legal regulations Their independence is vital, as it allows them to follow professional standards and ethical guidelines without succumbing to external pressures or conflicts of interest.

Maintaining the integrity of the audit process is crucial, and independence is key to achieving this It safeguards against undue influence, intimidation, or control from the entity being audited, allowing auditors to exercise professional judgment and skepticism freely This independence empowers auditors to identify and raise potential issues or concerns without fear, ensuring a thorough and unbiased audit.

The independence of auditors is essential for safeguarding public interest and enhancing market confidence When stakeholders, regulators, and the public view audits as objective and trustworthy, it bolsters confidence in financial markets, thereby promoting overall economic stability and transparency.

Regulatory bodies and professional standards, including the International Standards on Auditing (ISA) and local laws, implement specific requirements and safeguards to strengthen auditor independence These measures are designed to reduce threats to independence, ensuring that auditors uphold their objectivity and impartiality during the audit process.

Factors affecting independent auditor’s independence in auditing financial statements

Numerous researchers globally, including those in Vietnam, have examined the factors affecting auditor independence to improve audit quality In summary, the independence of auditors during financial statement audits is primarily influenced by several key factors.

Self-interest is a key factor influencing professional attitudes, particularly in accounting and auditing, as highlighted by numerous studies Armstrong & Owsen (2003) noted that prior research primarily examined professional ethics through the lenses of emotions and rationality, neglecting the importance of behavior and motivation in ethical training This underscores the necessity for recommendations aimed at professionals, learners, and educators to uphold ethical standards Furthermore, the authors indicated that accounting students frequently resort to ethical justifications to mask their behavioral misconduct.

Cohen and colleagues (1996), Modarres, A and colleagues (2011) also suggested that the ethical factors of accountants or auditors have some influence on the independence of auditors

The auditing process demands professionals with expertise and experience to ensure thorough and effective execution Auditor independence is crucial for maintaining ethical standards and enhancing the auditing process's success As highlighted by Arens and Loebbeck (2002), auditing standards must be clearly defined and widely accepted, emphasizing that auditors should possess the necessary training and skills to work independently through all stages of the audit, while being diligent in their routine activities and report preparation Furthermore, auditors should have a comprehensive knowledge base and continuously expand their expertise in specialized areas, as discussed by Gul et al (2009).

To enhance auditor independence and professional competence, it is essential for auditors to expand their knowledge through courses focused on ethics and professional expertise in their fields.

In 1999, Weeks and colleagues found that men and women possess differing ethical perceptions during their careers, noting that those with advanced career development exhibit a higher ethical perspective than early-career individuals Additionally, Eweje and Brunton (2010) emphasized that older and more experienced individuals tend to have a deeper understanding of ethics compared to their less experienced counterparts.

In the auditing profession, it is essential for auditors to prioritize ethical awareness and uphold their independence, as emphasized by Geiger and O'Connell (1999) By demonstrating strong ethical conduct and maintaining high levels of professional expertise, auditors can significantly enhance their career prospects and advancement opportunities.

1.2.2 Environmental factors group in auditing

Audit fees reflect the costs associated with the time, personnel, and complexity involved in conducting audits Auditing firms enter into specific contracts with clients, making the determination of audit fees a critical consideration This financial aspect can create pressure on auditors, who must not only excel in their professional duties but also ensure a steady income stream from clients for their firms.

In 2014, Kouakou Dogui and colleagues highlighted that audit fees are payments made by clients to independent audit firms for their services, a practice that is both legal and acknowledged by regulatory bodies The legitimacy of the audit fee system is further endorsed by information users, who adhere to the user-pay principle.

Low audit fees can compromise auditor independence, as noted in a study by Hyeesoo Chung and Sanjay Kallapur (2003), which found that abnormal fees may lead auditors to negotiate opinions with clients, ultimately affecting their motivation and independence Jong-Hag Choi and colleagues (2010) further emphasized the critical link between auditor independence and audit quality.

Research indicates a complex relationship between audit fees and auditor independence Kanagaretnam highlights that while large banks show no correlation between unusual audit fees and income adjustments, smaller banks exhibit income adjustments linked to higher total fees and non-audit fees Asthana and Boone suggest that lower audit fees may result from negotiations between auditors and clients, potentially affecting audit quality and independence Chepkorir's study further supports the notion that audit fees impact auditor independence Conversely, Magee and Tseng argue that fee reductions in the audit industry do not compromise auditor independence or the quality of financial reports, emphasizing that audit report issuance remains unaffected by fee structures.

The study by Gavious (2007) stated that: "To minimize the risk of losing a fee from a contract, auditors may comply with client requests and even collaborate in fraudulent activities."

Previous studies by Beattie et al (1999) and Alleyne et al (2006) highlight that economic dependence poses a significant threat to auditor independence, especially when a client's fees represent 10% of the audit firm's total revenue Despite these findings, subsequent research by Craswell et al (2002), Defond et al (2002), and Callaghan et al (2009) reveals limitations in earlier studies, indicating a lack of convincing evidence linking audit fees to auditors' issuance of audit opinions.

In 1981, DeAngelo also demonstrated the economic relationship between auditors and clients and audit fees This relationship diminishes the independence of auditors and, proportionally, reduces the quality of audits

Non-audit services encompass all offerings by an auditing firm that fall outside the scope of an audit engagement These services may include management consulting, tax compliance, and various accounting services Unlike audit engagements, non-audit services do not involve issuing an audit opinion and can be conducted either by the incumbent auditing firm or by independent firms.

Research has shown that independence is significantly affected by non-audit services:

• System design services: Pany K and P M J Reekers (1983)

• Management advisory services: Shockley, R A (1981), Yamani

(1991), Nur Barizah Abu Bakar et al (2005)

• Litigation support services: Haynes et al (1998), Brody and Masselli

(1996), Trompeter (1994), Crain et al (1994), Ponemon (1995), Jere

R Francis and Bin Ke (2006), Shaub (2004), Jenkins & Lowe (2011)

• Tax advisory services: Dahlia Robinson (2008) statements

In 2006, Ye Carson and Simnett examined how non-audit services affect auditor independence, emphasizing the significant connection between accounting and auditing within a company that compromises the independence of audit engagements.

Previous research, including studies by Beattie et al (1999) in the UK, Teoh & Lim (1996) in Malaysia, Law (2008) in Hong Kong, and Al-Ajmi & Saudagaran (2011) in Bahrain, has highlighted that audit fees significantly impact auditor independence The level of these fees, whether elevated or minimal, plays a crucial role in maintaining this independence.

Law's research reveals that client perceptions of fees have minimal impact on independence, with some clients even suggesting that these fees may enhance their sense of independence.

Independence of independent auditors in financial statement audits in

1.3.1 Legal regulations related to auditor's independence in some countries

The evolution of the auditing profession differs globally, with advanced nations like the United States and Western Europe at the forefront These regions have established a robust foundation for auditing, implementing stringent policies and guidelines that ensure high-quality standards and uphold the professional ethics of auditors throughout their training and practice.

* In the United States (US)

Independent standards are established by organizations such as AICPA, SEC, and PCAOB, which external auditors must adhere to based on their auditing clients Compliance with the independence standards set by these bodies is essential for maintaining the integrity of the auditing process.

Figure 2-1: The applicability of the AICPA, SEC, and PCAOB independence standards

(Source: Accounting News - Auditor Independence)

The AICPA Independence Standards mandate that auditing firms, along with their partners and professional staff, must adhere to the independence requirements outlined in AICPA Rule 101, which is part of the Code of Professional Conduct.

Conduct (Rule 101) is essential for auditing firms when providing attestation services to clients These services encompass the auditing and reviewing of financial statements, along with other attestation services as outlined in the AICPA's Statements on Standards for Attestation Engagements.

All audits of financial organizations, whether voluntary or mandated, must adhere to regulatory standards, including Part 363 of FDIC regulations and Section 562.4 of OTS regulations Compliance with these regulations is essential for ensuring transparency and accountability in financial practices.

16 publicly traded company or privately held), the external auditor of the financial organization must adhere to the AICPA's Independence Standards

Rule 101 of the AICPA establishes restrictions on the types of non-attest services that auditing firms can offer to their audit clients, specifically outlining the permissible non-attest services to ensure compliance and maintain the integrity of the audit process.

• Bookkeeping or other services related to accounting records or financial statements

• Financial information systems design and implementation

• Management or human resources functions

• Broker-dealer, investment adviser, or investment banking services

Before an auditing firm can provide non-attest services to audit clients, Rule

101 of the AICPA requires the auditing firm to meet certain general requirements

When a firm engages in non-attest services, such as internal audit support, it must adhere to specific requirements to maintain its independence Failing to meet these general or specific requirements can compromise the auditing firm's independence concerning the attest services offered to the audit client.

The general requirements for performing non-attest services for audit clients under Rule 101 include:

- The auditing firm must not perform management functions or make management decisions for the audit client

- The audit client must agree to perform the following functions related to the non-attest services:

• Assume responsibility for overseeing the activities being performed;

• Designate an individual with suitable knowledge and/or experience to oversee the services;

• Evaluate the adequacy and results of the services performed;

• Assume responsibility for the results of the services; and

• Establish and maintain internal control, including monitoring of ongoing activities

The SEC's independence standards, detailed in Rule 2-01 of Regulation S-X, were revised in January 2003 through Release No 33-8183 This amendment aimed to enhance the Commission's requirements concerning auditor independence, ensuring compliance with regulatory mandates.

Title II of the Sarbanes-Oxley Act of 2002 To assist practitioners in complying with the SEC's independence rules, the SEC's Office of the Chief Accountant has also issued and periodically updates a document titled Applying the Commission's Rules

Concerning the Independence of Auditors

The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies in accordance with U.S federal securities laws Only registered public accounting firms with the PCAOB are authorized to conduct audits for these companies.

The PCAOB is dedicated to establishing auditing and professional practice standards, focusing on quality control, ethics, and independence for public company audits As of April 16, 2003, the PCAOB adopted the independence standards outlined in the AICPA's Rule 101 of the Code of Professional Conduct, along with its interpretations and rulings, as its Interim Independence Standards.

The PCAOB's Interim Independence Standards do not override the SEC's auditor independence rules Consequently, if any SEC provision is less stringent than a corresponding PCAOB standard, registered accounting firms are required to adhere to the more stringent provision.

* In the United Kingdom (UK)

For over a century, the accounting profession in the UK has established a strong reputation grounded in objectivity, integrity, and competence, essential for ensuring auditor independence The importance of auditor independence has been a focus for nearly 200 years, with significant regulations, such as the prohibition of auditors from being officers or employees of the audited entity, marking a pivotal change in the British system The initial concerns regarding auditor independence emerged in the Companies Clauses Act of 1845, specifically in Section 102, which barred auditors from holding management roles within the company.

The standards for auditor independence in the UK closely mirror those in the United States, with a notable exception: UK independent auditors can undertake specific accounting functions for private companies According to the Companies Act 1985, issued companies must present audited financial statements, granting auditors access to necessary books, records, and relevant information to fulfill their statutory responsibilities Furthermore, the initial ethical guidelines emphasized that public practice members must "be and be perceived to be independent" (AICPA, 1987).

The United Kingdom revised the Companies Act 1985 to align with the European Union's Eighth Directive, establishing minimum standards for the approval of company auditors This includes specific educational qualifications and training requirements Furthermore, it mandates that member states guarantee the execution of company audits.

19 with integrity and have appropriate safeguards to protect the independence of auditors (Anderson and Keenan 1990)

THE CURRENT PRACTICE OF MAINTAINING THE

Overview of the independent audit field and auditor’s independence in

The auditing profession is experiencing significant changes driven by the evolving demands of the economy and society Rapid advancements in information technology and the rise of e-commerce are reshaping auditors' roles, requiring them to address new responsibilities beyond traditional financial reporting Auditors must now evaluate and report on non-financial aspects, such as environmental compliance and adherence to international quality management standards like ISO.

Auditing in Vietnam has emerged as a vital practice, gaining prominence after the country's accession to the World Trade Organization (WTO) and the expansion of the stock market As companies are now required to publicly disclose their financial statements, the demand for auditing services has significantly increased and continues to grow.

In response to recent developments, auditors in Vietnam must now face new challenges and broaden their responsibilities beyond just financial statements Their vital role in promoting transparency, accountability, and compliance is essential in the fast-evolving business environment, significantly contributing to the growth of Vietnam's economy.

In the 1990s, Vietnam established its first two independent audit companies under the Ministry of Finance to support economic renovation and attract foreign investment.

VACO (now Deloitte) and AASC Audit Firm This marked the formation of an independent audit services market in Vietnam

The independent audit market in Vietnam has seen significant growth, largely due to the support and attention from the Ministry of Finance This involvement has fostered a conducive environment for the advancement of the audit profession.

The professional association in Vietnam significantly contributes to the growth of auditing enterprises by enhancing professional standards and ethics Through active measures, the association offers guidance and support to auditors, fostering a more competent and ethical practice in the field.

The rapid expansion of auditing firms in Vietnam has significantly enhanced the independent audit market This surge in the number of audit enterprises has increased the availability of audit services, fostering competition that ultimately improves both quality and efficiency within the industry.

Vietnam's independent audit market has made remarkable progress, demonstrating the nation's dedication to delivering transparent and reliable financial information, which is essential for fostering economic growth and attracting foreign investment.

According to the updated list from the Ministry of Finance, as of August

As of 2023, there are 215 audit firms operating across the country, with around 2,348 certified auditors qualified to sign audit reports, out of a total of over 6,000 certified auditors.

The independent audit market in Vietnam is significantly influenced by the presence of major global firms, including Deloitte, KPMG, E&Y, and PwC, collectively referred to as the Big Four Their involvement has greatly enhanced the quality and credibility of auditing services in the region.

27 strength of Vietnam's independent audit system and the development of financial- monetary relations

Although foreign audit firms in Vietnam are fewer in number than domestic ones, they boast a larger pool of professional staff and play a crucial role in training and developing local professional associations Their close collaboration with key stakeholders, including the Ministry of Finance, the State Audit, the State Securities Commission, and professional organizations like VACPA and the Vietnam Association of Accountants (VAA), further enhances their impact on the industry.

Foreign audit firms, especially the Big Four, significantly enhance Vietnam's accounting and auditing legal framework by implementing international auditing standards (ISA), international accounting standards (IAS), and international financial reporting standards (IFRS) Their initiatives are instrumental in aligning Vietnam's accounting and auditing practices with global standards.

The independence of auditors in Vietnam has significantly improved alongside the growth of independent audit activities Vietnamese Auditing Standards No 200 outlines the legal framework for auditor independence, while Circular 70/2015/TT-BTC from the Ministry of Finance specifies the Standards of Professional Ethics for Accounting and Auditing These regulations align more closely with international standards, reflecting the evolving landscape of independent auditing in Vietnam today.

Auditors must uphold an independent attitude in their duties, while users of financial statements must trust in that independence This dual requirement is essential for ensuring the integrity of financial reporting.

Actual independence in auditing refers to auditors maintaining an unbiased attitude during the auditing process, while perceived independence relates to how users view auditors as independent professionals.

Some cases related to the auditor’s independence in auditing in Vietnam

* Nam Viet Auditing Company violated independence by colluding with clients during the audit process

Ms Bui Thi Ngoc Lan, Director of the Financial Consulting and Accounting Services Company and Nam Viet Audit Company - Northern Branch, has been found to have manipulated audit results This manipulation enabled the Tan Hoang Minh Group to falsify the financial records of its subsidiaries, making them appear profitable As a result, the group was able to issue bonds and misappropriate billions of Vietnamese dong from investors.

The auditors seriously violated Vietnamese auditing standards in providing financial report auditing services and also breached professional ethics by colluding with the client during the auditing process

Bui Thi Ngoc Lan bypassed Vietnam's auditing standards by directly coordinating with the Deputy Director of the Finance and Accounting Center, who also served as the Chief, alongside the Board of Directors of Ngoi Sao Viet Company and Soleil Investment and Hotel Travel Joint Stock Company, both of which are subsidiaries of the Tan Hoang Minh Group.

Accountant of the Tan Hoang Minh Group, as well as the Chief Accountant of Soleil Investment and Hotel Travel Joint Stock Company, to sign the audit contracts

Ms Bui Thi Ngoc Lan appointed her auditors as team leaders for the audits of Ngoi Sao Viet Company and Soleil Company, along with their audit assistants, to conduct the auditing of the individual and consolidated financial reports for the year 2020 for both companies.

The audit process revealed significant gaps, as many crucial items were not adequately examined or supported by sufficient auditing evidence, yet conclusions were still reached For both short-term and long-term financial investments, there was a lack of verification against original documents, relying solely on photocopies of transfer contracts to assess the investments as of December 31, 2020.

Bui Thi Ngoc Lan manipulated accounting entries to present a misleadingly positive financial status for Ngoi Sao Viet Company and Soleil Company, falsely indicating profitability in 2020 This deception culminated in the issuance of an unqualified audit report.

According to the investigative agency, the unqualified audit opinion for the

The 2020 financial reports of Ngoi Sao Viet Company and Soleil Company did not meet Vietnamese auditing standards due to the auditors' inability to gather adequate and appropriate audit evidence necessary for forming their audit opinions.

*The auditor of S&S Auditing and Consulting Co., Ltd violated independence for self-interest

This is a case that occurred at the S&S Consulting and Audit Limited Liability Company (Ho Chi Minh City)

In 2011, Mr Nguyen Duy Xuyen, the Director of Quang Trung Mechanics, and Ms Tang Thi Thanh Ha, the Chief Accountant, manipulated the 2010 financial report to secure a bank loan This fraudulent report included figures that were inconsistent with the actual financial report prepared on March 3, 2011, which was signed by General Director Mr Nguyen The Phuong and Ms Ha.

Mr Xuyen sought to validate a fraudulent report by reaching out to a staff member at S&S Audit Company, despite the fact that the legitimate financial report had already been audited by Hung Vuong Audit Company and S&S had no contractual relationship with Quang Trung Company Auditor Phung Trung Kien from S&S Audit Company knowingly compromised professional ethics and auditor independence for personal benefit, ultimately signing the forged audit report on March 12.

2011 (the same day as the genuine financial report) and forged the signature of his superior, Mr Sam Han Lee - Director of the Company Upon reinvestigation in

In 2019, an investigative agency confirmed that Mr Kien acknowledged his involvement in a forged signature on an audit report However, the evidence gathered was inadequate to establish whether Mr Kien intended to assist Mr Xuyen in fabricating a loan application for the purpose of misappropriating funds Consequently, the investigation was halted, and Mr Kien was exempted from criminal liability.

Nevertheless, this case represents a violation of professional ethics by the auditor during their work

CHAPTER 3 ASSESSMENTS AND RECOMMENDATION TO IMPROVE INDEPENDENT AUDITORS'S INDEPENDENCE IN VIETNAM

Assessment the practical situation related to the independence of

Vietnam is increasingly aligning with global standards, especially in its commitment to International Financial Reporting Standards (IFRS) The emphasis on audit quality is growing, driven by a younger workforce that values honesty and reliability in the profession Additionally, the number of independent auditing firms beyond the BIG4 is on the rise, reflecting a dynamic and optimistic approach among the younger generation This shift enhances the gravity, demeanor, and ethical standards of the auditing profession in Vietnam.

In terms of quality, the majority of auditors are rigorously trained in professional expertise and relevant knowledge, strictly adhering to ethical principles, with independence being a core principle of auditors

Vietnam is actively updating its professional ethics standards for accounting and auditing in alignment with the International Federation of Accountants (IFAC) guidelines In December, the Ministry of Finance introduced 37 Vietnamese auditing standards to ensure they are consistent with international practices.

In 2012, the Vietnamese Association of Certified Public Accountants (VACPA) aimed to enhance professional standards in independent auditing and foster the development of new services From 2013 onwards, VACPA collaborated with the Ministry of Finance, businesses, and researchers to develop, compile, and update the second phase of ten Vietnamese standards focused on assurance services, related services, professional ethics, and auditing.

In 2015, the Ministry of Finance released Circular No 70/2015/TTL-BTC, which introduced the second-phase standards aligned with the latest international professional standards established by the International Federation of Accountants (IFAC).

Vietnam produces essential guidance materials to help members understand and implement auditing and professional ethics standards These resources include sample audit programs for financial statements and project completion settlement reports, as well as quality control regulations for auditing firms The Ministry of Finance collaborates with VACPA to conduct annual quality control audits of auditing firms, ensuring compliance with professional ethics standards Additionally, practicing auditors are required to complete at least four hours of professional ethics training each year to stay updated on new provisions.

Besides the positive aspects of auditor independence in Vietnam, there are also some limitations regarding auditor independence as follows:

Auditors face a significant conflict of interest due to the negotiation of audit fees with client management, which can pressure them to limit their investigations or compromise their honest reporting This dynamic not only risks the immediate loss of fees but also threatens future engagements, as management may seek to replace auditors with another firm Consequently, the extent of disagreements between auditors and management, as well as the impact of these conflicts, is challenging to quantify.

While audit fees play a significant role in the relationship between auditors and clients, they are not the only factor driving collaboration Independent audit firms also generate income through undisclosed consulting services, including tax advice and business management consulting This reliance on lucrative, often confidential consulting contracts may lead auditors to become dependent on client management, raising concerns about potential conflicts of interest Consequently, the services offered by auditors may conflict with their primary role, compromising their independence and objectivity.

• Related to non-audit services

Many audit firms extend their offerings beyond assurance services, which can increase the risk of self-review and compromise auditor independence during financial report audits.

Many businesses utilize various services from audit firms, which, in their pursuit of higher revenue and profits, often comply with these requests This practice raises concerns about self-reviewing their core services, resulting in potential risks such as subjectivity that may cause auditors to overlook errors or the possibility of concealing past mistakes and fraud.

In Vietnam, the auditing profession is significantly influenced by personal relationships, which compromises the independence of auditors This reliance on personal connections often leads to situations where auditors prepare financial reports and subsequently audit their own work, sometimes exchanging practicing certificates Additionally, during audits, instances of commercial irregularities and value-added tax discrepancies are frequently noted but remain unreported to the authorities, highlighting a concerning trend among many auditors.

"qualify" suspicious items in financial reports Therefore, the independence of auditors is still limited.

Recommendation to improve auditor’s independence in Vietnam

Maintaining auditor independence is crucial for preserving and enhancing the profession's credibility Auditors have a responsibility that goes beyond serving individual clients or businesses; they must also adhere to ethical standards that ultimately benefit the public.

• Establishing an independent audit organization that is not directly dependent on the state agency it is auditing

• Ensuring sufficient financial resources for the audit organization to operate independently and without influence from the state agency

Independence in the audit process:

• Establishing detailed and transparent audit procedures that are not interfered with by the state agency

• Ensuring auditors have full access and are not restricted in gathering information and data from the state agency

• Ensuring auditors receive specialized training in auditing and regulations regarding independence

• Developing training and standardization programs for auditors that cover their rights and responsibilities in ensuring independence

• Requiring state agencies to publicly disclose financial information and activities

• Providing public access to audit reports and audit findings

• Ensuring auditors have the freedom to evaluate analyses and audit findings without interference from the state agency

• Promoting the use of international and national standards in the audit process to ensure independence and quality

Establishing supervision and feedback mechanisms:

• Establishing independent supervision mechanisms to ensure the accuracy and independence of the audit process

• Providing strong feedback and taking strict actions in cases of interference with auditor independence

• Building a risk management system to deal with pressures and interventions that may affect auditor independence

To maintain the independence of risk management decisions and their execution, it is crucial that auditors can perform their duties without state agency interference Achieving this independence necessitates a robust commitment from the state agency, along with necessary modifications to existing regulations and procedures.

In addition to directly improving the independence of auditors in auditing, the state should also implement the following issues to raise awareness of auditor’s independence:

Establishing a legal framework for professional activities is essential in today's market economy, necessitating the development of comprehensive regulatory documents that clearly define the roles and responsibilities of professional organizations and associations.

To enhance professional ethics among auditors, it is essential to require practitioners to complete ethics courses for licensing or certification This approach promotes transparency and accountability by recognizing individuals and institutions that uphold standards of honesty and integrity, without compromising the integrity of official data.

To prevent unethical behavior in independent auditing, it is essential to implement strict policies and impose severe sanctions on auditors who violate ethical standards Given that errors in this field can have significant negative impacts on society, the economy, and financial markets, maintaining high ethical standards is crucial for safeguarding public trust and ensuring accountability.

• Enhance communication, monitoring, and enforcement of compliance with professional standards for certain regulated business professions, including independent auditing

3.2.2 From the professional associations' perspective:

• Develop mechanisms to disseminate ethical standards requirements to professional practitioners Regular advising and guidance should be provided to auditors on implementing ethical standards in their professional work

Enhancing training and development is crucial, particularly through collaboration with international professional organizations that specialize in ethical standards It is essential to regularly connect professionals with these global standards to ensure they remain updated with the latest international developments.

Enhancing the oversight of members and auditors in their professional practices is crucial Experts emphasize that professional organizations play a vital role in promoting ethical behavior and ensuring adherence to regulations among their members While disciplinary actions are necessary, they should be complemented by proactive measures to foster a culture of compliance and integrity within the profession.

While professional organizations lack the authoritative weight of court judgments, their influence is considerable The most severe consequence they impose is expulsion, which, despite not resulting in compensation or criminal charges, can lead to the loss of an accounting practice license Thus, regulating unethical behavior through professional ethics can be more stringent than legal measures, as these organizations can address misconduct even in the absence of legal requirements.

• Establishing detailed and transparent audit procedures that are not interfered with by any relevant parties

• Ensuring auditors have full access to information and documents related to the audit and are not restricted in gathering necessary information

Rights and responsibilities of auditors:

• Ensuring auditors have the right and responsibility to independently make decisions and conclusions in the audit process

• Developing and applying professional and ethical standards for auditors to ensure independence and quality in their work

• Establishing independent evaluation mechanisms to ensure accuracy and independence in decision-making and audit conclusions

• Strengthening supervision of auditors' activities, including external and internal evaluations within the audit organization

• Requiring auditors to publicly disclose information about the audit process, methods, and audit findings in a transparent manner

• Creating conditions for transparency and disclosure in accessing information and audit results for stakeholders

A comprehensive understanding of diverse fields related to the profession is essential for auditors Engaging actively with practical aspects fosters both theoretical and practical knowledge Additionally, grasping the professional ethics outlined in Circular No 70/2015/TT-BTC is crucial for maintaining integrity in the auditing profession.

• Continuously improve professional development through advanced training courses Regularly learn, share experiences with peers, and adhere to professional ethics standards

To become a successful professional practitioner, it is essential to regularly cultivate key qualities such as observance, independence, impartiality, diligence, and responsibility Embracing a curious mindset and a commitment to continuous learning allows individuals to gain practical experience, which in turn enhances their professional skills and essential attributes.

3.2.4 For users of Financial Statements perspective:

• Understand the process and criteria for selecting an independent auditor who has no affiliation with relevant parties

• Conduct surveys and evaluations of the skills, experience, and reputation of auditors before selecting

Ensuring the Independence of the Auditor:

• Require auditors to provide information on policies and measures to ensure independence, including measures to address potential conflicts of interest

• Review and verify the independence of auditors by requesting relevant documents, certifications, and papers

• Ensure that the audit contract is clearly and specifically defined, including the scope of work, responsibilities of the auditor, and terms regarding independence

• Ensure that the contract does not contain provisions or regulations that may potentially affect the independence of the auditor

• Provide sufficient and accurate information and documentation to the auditor to ensure an effective audit process

• Ask questions and request the auditor to provide clear explanations regarding detections, opinions, and conclusions in the audit report

• Read and thoroughly understand the audit report and accompanying information

• Carefully evaluate the auditor's opinions, findings, and conclusions, and fully understand their significance and importance

• If there are any issues related to the independence of the auditor, contact the auditor or the regulatory authority to provide feedback or propose improvements

• Participate in the process of proposing and evaluating measures to enhance the independence and quality of the auditor's work

The audit profession has evolved to offer an objective assessment of the fairness and reliability of financial information, fostering confidence among stakeholders like management, investors, and financial institutions To maintain this trust, auditors must comply with professional ethics, with independence being the most crucial principle.

Auditor independence is crucial for maintaining confidence in financial report opinions, requiring both formal and cognitive independence This article synthesizes research on auditor independence, covering its definition, influencing factors, and the current global and Vietnamese landscape It also provides solutions and recommendations to enhance auditor independence in financial reporting.

1 Ministry of Finance, Professional ethical standards of accounting - auditing (2015), Hanoi (Issued together with Circular No 70/2015 / TT- BTC dated May 8, 2015, of the Ministry of Finance)

2 General Statistics Office, Vietnam Labor Market Information Update 3 The Association of Certified Fraud Examiners (2014), Report to the nation occupation fraud and abuse

3 Prof Dr Nguyen Quang Quynh - Financial Auditing Textbook, Hanoi National Economics University Publishing House (2016)

4 Auditing and Assurance services 16th, Alvin-A.-Arens-Randal-J.-Elder- Mark-S.-Beasley-Chris-E.-Hogan-Auditing-and-Assurance-Services-

5 Decree No 05/2019 / ND-CP – Internal Audit dated January 22, 2019)

6 Law on Independent Audit in 2011 (Law No 67/2011/QH12 dated March

7 IAASB, 2015 International Standards on Auditing, Published by IFAC,

8 Roger W Bartlett (1993) A Scale of Perceived Independence: New Evidence on an Old Concept Accounting, Auditing & Accountability Journal

9 Adeyemi & Olowookere, 2012 “Non-audit services and Auditor Independence-Investorors’ Perspective in Nigeria” Business and Management Review vol 2(5), pages 89-97 July, 2912 ISSN 2047-0398

10 Beattie, V., Brandt, R., & Fearnley, S., (1999) “Perceptions of auditor independence”: UK evidence Journal of International Accounting, Auditing and Taxation, 8(1), 67–107

11 Eweje, G and Brunton, M., 2010 “Ethical perceptions of business

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