From 2012 to 2020, three major audit firms belonging to the world’s most prestigious “Big 4” group, including Ernst & Young Vietnam (EY Vietnam), Deloitte Vietnam and KPMG Vietnam were hired by SCB as auditors. independent every year.
Specifically, EY Vietnam was the auditor for this bank for 5 years, from 2012 to 2016. After that, SCB changed the audit company to Deloitte Vietnam for 3 years, 2017-2019. In 2020, KPMG Vietnam is the auditor for this bank.
For a decade, the three audit firms belonging to the “Big 4” group have all given full approval to SCB’s financial statements and did not show any abnormalities in the bank’s financial situation. As of June 2021 – the most recent audit before the case, this bank had 6-month pre-tax profit of more than 450 billion VND, equity of nearly 22,000 billion.
But when the case “broke out”, SCB was placed under special control by the State Bank from October 2022. Re-audit results show that as of September 30, 2022, the bank’s accumulated loss was nearly 465,000 billion VND, negative equity was about 444,000 billion VND. The trial panel of the case asked the Ministry of Public Security to clarify the responsibilities of the three “Big 4” firms that audited SCB and handle them if there are sufficient grounds.
I. FULL ACCEPTANCE OF AUDIT OPINION OF THE BIG 4 AND THE LIABILITY OF AUDIT COMPANIES AND AUDITORS
According to Circular 214/2012/TT-BTC of the Ministry of Finance promulgating Vietnamese audit standards (Vietnamese Standard on Audit – VSA). After completing the audit procedures, the auditor will have to prepare an audit report in accordance with the instructions and report templates of auditing standards, instead of in a free-form manner. Relevant auditing standards include standards no. 700, 705, 706, 710, 720, 800, 805, 810, 1000, 930, 920.
For financial statement audits (a common type of audit), there will be 4 types of audit reports as follows:
1.Unqualified audit opinion: An opinion expressed when the auditor concludes that the financial statements have been prepared, in all material respects, in accordance with the reporting framework. applicable financial statements.
2. Partially qualified audit opinion: This opinion is given in cases where, based on sufficient and appropriate audit evidence collected, the auditor concludes that errors, considered separately, are individually or in aggregate, have a material but not pervasive effect on the financial statements; or the auditor is limited in his or her audit work and is unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion, but the auditor concludes that the possible effects of Undiscovered errors (if any) may be material but not pervasive to the financial statements.
3. Unacceptable opinion (or adverse opinion): An adverse opinion is given in cases where, based on sufficient and appropriate audit evidence collected, the auditor concludes that the Misstatements, individually or in the aggregate, have a material and pervasive effect on the financial statements. This type of report is issued when the scope of the audit is seriously limited or the documents are too vague or unclear, making it impossible for the auditor to conduct the audit according to the planned program.
4. Refraining opinion (or inability to express an opinion): A disclaimer opinion is given in cases when the auditor cannot collect sufficient appropriate audit evidence to provide a basis for an opinion. audit opinion and the auditor concludes that the possible effects of undiscovered misstatements (if any) could be material and pervasive to the financial statements.
II. WHEN SHOULD THE AUDITOR GIVE AN COMPLETE OPINION IN THE AUDIT REPORT?
1. If an audit opinion is an unqualified opinion, does it mean that the financial statements will definitely not have material misstatements?
(Section 05 of VSA Standard 200)
“In order for the auditor to have a basis for expressing an audit opinion, Vietnamese Auditing Standards require the auditor to obtain reasonable assurance about whether the financial statements, taken as a whole, are Are there any material misstatements due to fraud or error? Reasonable assurance is a high level of assurance and is only achieved when the auditor has collected sufficient appropriate audit evidence to reduce audit risk (the risk posed by the auditor). inappropriate opinion when the financial statements contain material misstatements) to an acceptably low level. However, reasonable assurance is not absolute assurance, as there are inherent limitations of an audit that make most of the audit evidence upon which the auditor draws conclusions and opinions. Audit opinions are more persuasive than affirmative (see guidance in paragraphs A28 – A52 of this Standard).”
Accordingly, in all cases it cannot be affirmed that the financial statements will definitely not have material misstatements, however, if there is a fully accepted audit opinion, the possibility of material misstatements will be greater. at a very low level.
2. How are material misstatements of financial statements understood?
(Section 06 of VSA Standard 200)
“The concept of materiality is used by auditors in both the planning and execution stages of the audit and in assessing the impact of misstatements discovered during the audit, including misstatements has not been adjusted (if any) in the financial statements (see regulations and instructions of Vietnam Auditing Standards No. 320 and No. 450). In general, errors, including omissions, are considered material when considered individually or in the aggregate, such errors can influence the decisions of users of financial statements. Judgments about materiality need to be considered in specific circumstances, on the basis of the auditor’s understanding of the financial information that users of financial statements are interested in, and the scale or nature of the errors. , or a combination of both. The auditor’s responsibility is to express an opinion on the overall financial statements, therefore, the auditor is not responsible for detecting errors that are not material to the overall financial statements.
III. WHEN SHOULD AUDITORS NOT GIVE AN COMPLETE OPINION IN THE AUDIT REPORT?
According to Auditing Standard 705, the auditor must not express an unqualified opinion when:
(a) Based on the audit evidence collected, the auditor concludes that the overall financial statements still contain material misstatements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free of material misstatements.
IV. WHO HAS THE RIGHT TO EVALUATE AUDIT REPORTS AS TRUE OR FALSE?
The person who holds the fate of the auditing companies and auditors in the SCB Bank case at this time is the Ministry of Finance. To determine whether the audit reports of the Big 4 audit firms are true or false and handle the responsibilities of the audit firms and auditors involved, the police investigation agency will conduct a solicitation of supervision. determined by the Ministry of Finance. The Ministry of Finance will inspect and evaluate whether audit reports are issued in accordance with Vietnam Auditing Standards.
In case the Ministry of Finance concludes that there is no basis to issue an unqualified audit opinion, it is likely that auditors and legal representatives of Big 4 auditing firms must be held responsible depending on the level of responsibility. degree of violation. Auditing companies and auditors may have their audit status suspended, be administratively sanctioned, or even be criminally prosecuted.
In the Trinh Van Quyet case, auditors of Hanoi Auditing and Accounting Co., Ltd. were prosecuted for “Fraudulent appropriation of assets” for giving an audit opinion fully accepting the report. Financial statements of Faros Construction Joint Stock Company.
In November 2022, the Investigation Police Agency of the Ministry of Public Security requested the Ministry of Finance’s appraiser to assess the issuance of the above audit reports. On September 22, 2023, the Inspector of the Ministry of Finance issued the Inspection Conclusion, determining: “The audit documents do not provide sufficient appropriate audit evidence as a basis for the auditor to give an opinion.” unanimously accepted the audit reports.
Since then, Nguyen Ngoc Tinh – General Director, auditors Tran Thi Hanh, Nguyen Thi Thu Huong, Le Van Tuan of Hanoi Auditing and Accounting Co., Ltd. were all criminally prosecuted for the crime of “Fraudulent appropriation”. property appropriation” as an accomplice, and at the same time, Hanoi Auditing and Accounting Co., Ltd. was suspended from its audit status.
For further information, please contact:
Kent Wong, Partner, VCI Legal
kentwong@vci-legal.com
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VCI Legal is one of the leading law firms in Vietnam with offices in Ho Chi Minh City and Hanoi, supporting businesses to explore business opportunities in Vietnam with expertise in Finance and Banking. banking, M&A, Enterprise, Capital markets, Insurance, Foreign direct investment, Cross-border transactions, Competition, Dispute resolution, Energy, Infrastructure, Intellectual Property Rights Management and Real Estate movables.
