Vietnam - Legal Overview - Accounting Systems And Auditing

The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.

This summary is, necessarily, selective and is no substitute for detailed legal advice.

1. The Ordinance on Accounting and Statistics of 10 May 1988 was issued, effective from October 1988. This applies to all enterprises with foreign invested capital as well as State bodies and other Vietnamese Enterprises, and was followed, some 5 years later, on 23 October 1993, by Circular 84TC/CDKT on the Implementation of Accounting Standards for Enterprises with Foreign Owned Capital.

2. Under the legislation and the Law on Foreign Investment, Joint Venture Companies (JVCs), Wholly Foreign Owned Enterprises ( WFOE'S) and the foreign party to a Business Co-operation Contract have the following rights and obligations:-

3. Accounting

(1) Use may be made of either a Foreign System of Accounting or the Vietnamese Accounting System (the latter does not follow International Accounting Standards, whose use is not yet mandatory). A foreign party to a Business Co-operation Contract should utilise and register its existing accounting system.

(2) Application for registration of the chosen Accounting System must be made to the Ministry of Finance with 180 days of the grant of the Investment Licence. A response should be given within 30 days.

If a foreign system is to be adopted, details of the accounting documents, books, vouchers and records must be given. Sample documents should be provided also, together with full information and explanation of the system.

(3) An enterprise may apply for permission to keep its records in a foreign language. If so permitted, records must also be kept in Vietnamese.

Application may also be made for records to be kept in a foreign currency. The original records must be kept at the enterprise's premises in Vietnam, and preserved for at least 10 years.

The foreign party to a Business Co-operation Contract must ensure that all accounting documents relating to its operations in Vietnam are available to enable the competent Vietnamese Authorities to carry out any inspections.

(4) The records must be true and fair, and kept in accordance with the law, as well as accurate, and up to date.

(5) The accounting year of the enterprise must run from I January to 31 December, unless permission is obtained otherwise.

(6) Any changes to the accounting system used by an enterprise may be made only with the permission of the Ministry of Finance, and at the beginning of an accounting year.

(7) Accounting Reports must be submitted quarterly and annually, and should comprise:-

- a balance sheet;

- a profit and loss statement;

- a report of the Board of Management, giving a description of the current situation of the enterprise, and its results, information as to the distribution of profits, and proposals relating to the business operations of the enterprise.

(8) Reports must be supplied to the parties to a joint venture, to the SCC I and the Local Tax Office. An enterprise operating in an Erz must submit its report to the Management Committee and Tax Office of the EPZ.

(9) Annual reports must be certified by an independent auditor

4 Auditing

(1) An independent auditor must be a suitably qualified Vietnamese citizen or a foreigner permitted to reside in Vietnam and registered to practise with an independent auditing Organisation operating legally in Vietnam.

(2) Audit reports must be independent, true and fair and objective, and must address

- the truthfulness, fairness and reasonableness of the data as set out in the enterprise's accounts;

- whether or not there has been compliance with Vietnamese accounting standards and such international standards as are recognised by Vietnam.

(3) The auditor must certify and sign the report, which must also be sealed by a senior member of the auditing Organisation.

(4) The use by foreign investors of the accounting system of their choice was a step considered useful at a time when understanding of accounting and standards generally in Vietnam were not high. However, this is said to have caused confusion for officials required to deal with a variety of systems and to allegations of evasion. Proposals are, therefore, under way to introduce one system to be used by all foreign investors. It is expected that this will introduce procedures more in line with International Accounting Standards, and give uniformity. It is not, however, expected to be issued before the end of 1995.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".