Financial statement audit obligations for companies receiving foreign direct investment


  • US CPA
  • Masaya Sakai

FDI companies may invest and expand their business in Vietnam by establishing new companies or acquiring existing companies. However, some FDI companies do not fully understand the regulations regarding financial statement audits in Vietnam, which results in frequent delays or failure to submit and publish financial statements. If a company fails to undergo an audit despite being subject to an audit, it will be subject to a fine of between VND10,000,000 and VND20,000,000. This report provides a basic understanding of the financial statement audit obligations of FDI companies with subsidiaries in Vietnam.

1. If an FDI enterprise has subsidiaries, does the FDI enterprise need to prepare consolidated financial statements?
Article 5 of Circular 202/2014/TT-BTC stipulates.
– At the end of the financial year, the parent company is responsible for preparing the consolidated financial statements for the entire group.
– A parent company is not required to prepare consolidated financial statements only if it meets all of the following conditions.
a) It is not a public interest organization.
b) The state-owned enterprise or the State is not the controlling shareholder.
c) It is a subsidiary of another company and has obtained consent from all shareholders (including shareholders without voting rights) not to prepare consolidated financial statements.
d) The capital or debt is not traded in the market.
e) The parent company of the parent company prepares consolidated financial statements in accordance with accounting standards of Vietnam and discloses public information.
Therefore, whether an entity is an FDI company or not, if it owns subsidiaries and does not meet any of the above conditions a) to e), it is required to prepare consolidated financial statements.

2. Do FDI companies need to have both their separate and consolidated financial statements audited?
Article 37 of the Independent Audit Act of 2011 stipulates that the following companies, including their branches, are required to have their individual financial statements audited by an auditing firm.
a) Foreign-invested enterprises
b) Credit institutions established and operating under the Credit Institutions Law
c) Financial institutions, insurers and insurance brokerages2
d) Public companies, securities issuing organizations, and securities exchange organizations
In addition, Clause 4 of Article 15 of Decree 17/2012/ND-CP provides detailed provisions and application guidelines for some provisions of the Independent Audit Law as follows.
“Where an enterprise or organization that is obliged to prepare separate financial statements as provided for in paragraphs 1 and 2 of the said Article is required by law to also prepare consolidated financial statements, the consolidated financial statements must also be audited.”
Therefore, based on the above two provisions, if an FDI enterprise has a company, it is expected that the following financial statements will normally be required to be audited.
– Separate financial statements of FDI companies
– Consolidated financial statements of FDI companies (obligation to prepare them as mentioned in paragraph 1 above)

3. Do subsidiaries of FDI companies also need to be audited?
If a subsidiary of an FDI company falls into any of the four types described in Chapter 2, then the subsidiary is also required to have its separate financial statements audited. Therefore, the question often arises as to whether a company falls under a) foreign-invested enterprise.
The 2020 Investment Law stipulates that any organisation with foreign investors as shareholders will be considered a foreign-invested enterprise. In this regard, although FDI companies receive investment from overseas, in practice they are considered to be Vietnamese companies in reality, and the parent FDI company does not qualify as a foreign-invested company. Therefore, if a company falls under the following two circumstances, the subsidiary will not be considered a foreign-invested enterprise and will not be required to undergo a separate financial statement audit.
(i) 100% owned by FDI enterprises
(ii) Where investment is made by FDI companies and other domestic companies
It should be noted that even if some of a subsidiary’s shares are owned by an FDI company, if other shares are owned by foreign companies, the subsidiary will need to have its individual financial statements audited.

In conclusion
Above, we have explained the financial statement audit obligations of FDI companies that have subsidiaries in Vietnam. We hope that this report will help you understand the regulations regarding financial statement audits in Vietnam and serve as a reference when checking whether or not an audit obligation exists.

That’s all

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