Responsibilities of Independent Auditors and Audit Firms Regarding Audited Financial Statements

​Vo Phan Su - AS Auditing Company

Currently, many people are concerned and question how the figures in audited financial statements differ from those reviewed by State legal authorities.

The issue that needs further clarification is the responsibility of independent auditors and independent audit firms (collectively referred to as independent auditors) for the figures presented in audited financial statements.

To answer the above question, we need to discuss the following four main issues:

1. LEGAL REGULATIONS ON THE RESPONSIBILITIES OF AUDIT FIRMS AND AUDITORS

According to Article 29 of the Law on Independent Auditing, independent audit firms and independent auditors are responsible before the law and their clients for the audit results based on the signed audit contract.

The responsibility of independent auditors for the audit results to users arises when:

• Users of the audit results have a reasonable understanding of the financial statements and the basis for preparing the financial statements (Accounting Standards, Auditing Standards);
• Users of the audit results understand that they must carefully use the information in the audited financial statements.

A business may hire multiple independent auditors to audit its financial statements, and it has the right to decide whether to use the results of the independent audit.

According to Vietnam Auditing Standard No. 240: “The audited entity and parties using the audit results must have the necessary understanding of the provisions in this standard to collaborate with the audit firm and auditors, as well as to manage relationships related to the audited information.”

2. RESPONSIBILITIES OF THE AUDITED ENTITY AND INDEPENDENT AUDITORS IN AUDITED FINANCIAL STATEMENTS

2.1. Responsibilities of the Audited Entity

• Prepare and present complete, truthful, and reasonable financial statements.

• Manage and store the data related to the prepared financial statements.

2.2. Responsibilities of an independent auditor

• Based on the results of their work in accordance with Accounting and Auditing Standards, auditors provide opinions on the financial statements from a materiality perspective.

Therefore, the concept of "accuracy" is not applied in auditing.

According to the regulations in the Independent Auditing Standards, auditors conduct their work based on sampling and professional judgment. If the entity does not provide sufficient documentation, the auditor has the right to request additional information or use other alternative procedures to gain understanding.

However, the entity has the right to refuse to provide additional documents, and auditors may fail to obtain sufficient information through alternative procedures. In such cases, if the scope of the audit is affected, the auditor will express their opinion in the audit report or include a note in the financial statement’s disclosures, or refuse to provide an opinion on the financial statements depending on the extent of the issue's impact. It can be said that the auditor's opinion is formed based on their assessment of the financial statements after performing the audit in accordance with auditing standards. The auditor's opinion enhances the reliability of the audited financial statements for users in terms of materiality. Therefore, it does not guarantee 100% accuracy, nor does the auditor have the responsibility to explain or retain documentation for 100% of the figures presented in the financial statements, as this responsibility lies with the audited entity.

3. LEGAL NATURE OF AUDITED FINANCIAL STATEMENTS

In Vietnam, as in most countries around the world, the Law on Independent Auditing and sub-laws require or encourage the use of independent auditors for prepared financial statements. The purpose of this requirement is to enhance the reliability of the financial statements for users and to elevate the nation's adherence to Accounting Standards.

Currently, audited financial statements do not serve as evidence for investigations or as proof of guilt in court. The use of audited financial statements in investigations, interrogations, or as evidence in court depends on the decisions of law enforcement and judicial authorities. The audit results may only serve as a reference or provide better understanding to government authorities about the company.

By nature, independent audit is a business performing work according to auditing standards. Auditors are not trained in investigative procedures or questioning, and independent auditors are not law enforcement agencies.

4. FRAUD AND ERRORS

Fraud is a broad concept, and auditors are primarily concerned with fraud that leads to material misstatements in the financial statements, based on the data provided by the company. Although auditors may suspect fraud, they are not authorized to make legal determinations regarding whether fraud has actually occurred.

According to Auditing Standard No. 240 – The auditor's responsibilities relating to fraud in an audit of financial statements:

• The prevention and detection of fraud primarily lie with the company's Board of Management and Board of Directors.
• The auditor's responsibility is to obtain reasonable assurance that the financial statements, as a whole, are free from material misstatements caused by fraud or error.
• Due to the inherent limitations of auditing, there is an unavoidable risk that some material misstatements affecting the financial statements may not be detected, even when the audit is conducted in accordance with Vietnamese Auditing Standards.

Therefore, if the data provided by the company's accountants for the audit is incomplete, fabricated, or omitted, the responsibility lies with the company. Even though the auditor performs their work according to standards, there is still the possibility that fraud may go undetected. This is an inherent limitation of independent auditing.

Thus, we can better understand the legal value of audited financial statements!

In Summary:

1. Independent auditing enhances the reliability of financial statements, but it does not reduce the legal responsibilities and obligations of the audited company.
2. The user of the audit results must have a reasonable understanding of the financial statements and the basis for preparing the financial statements (Accounting Standards, Auditing Standards); At the same time, the user of the audit results must understand that the information in the audited financial statements has been used in a prudent manner.
3. The purpose of requesting an audit of financial statements is to raise the national level of compliance with Accounting Standards. Audited financial statements are not considered investigative evidence or proof for court convictions. How audit results are used in investigations, interrogations, or as evidence in court depends on law enforcement and judicial authorities.
4. The inherent limitation of independent auditing is that it can never detect all errors, even when the audit has been fully conducted according to standards.