Worry sparks over broker audit standards

Friday, April 25, 2008
A decision of State Securities Commission to authorise any independent auditing firms to audit publicly-held securities companies and fund management companies may result in poorer quality audits, some experts are warning.

The commission issued Official Dispatch No 657/UBCK-PTTT last week to accept independently-audited 2007 financial statements from all such companies.

"The decision could adversely impact the quality of audited financial statements because of the low standards of professional qualifications at different firms," said Bui Van Mai, director of the Ministry of Finance’s Department of Accounting and Auditing.

"Some auditing firms have been established for over a decade, with others were only set up two months ago. Some have dozens of auditors, others only three," Mai said.

Under the previous rule from the Ministry of Finance, around 141 independent firms were entitled to audit all kinds of enterprises, but only 26 companies were qualified to audit brokerage houses and fund management companies.

Nguyen Son, head of the market development department of the State Securities Commission (SSC), explained that the decision stemmed from the fact that the number of public firms was increasing strongly and there was huge pent-up demand for qualified auditors.

In fact, according to SSC statistics, there are now 904 unlisted and 300 listed, securities and fund management companies operating now in Viet Nam.

"It’s impossible for only 26 qualified firms to audit more than 1,200 public securities and fund management companies," said an expert from the SSC who asked to remain anonymous.

"We had no choice," he said, noting that this was an interim decision making it possible for companies to release audited 2007 financial statements no later than this month.

"The pressure to release the 2007 financial statements of public companies was high and the number of qualified auditing firms limited, so the SSC issued the decision," Mai agreed, however noting that the decision would have negative impacts on audit firms that have already made efforts to earn qualification for the list of 26 firms eligible to audit securities companies.

The decision should be only a short-term solution of a year or less, he said. Finding qualified firms meeting certain standards would be a long-term solution.

Auditor shortage

In 2005, only 200 new auditors were granted certificates, followed by another 250 in 2006. By last year, only 30 new auditors were licensed.

Many qualified auditors have also moved to other work in the financial, banking, and securities sectors.

Deloitte Viet Nam Co Ltd general director Ha Thi Thu Thanh said that "out of 141 independent auditing firms, only 28 employ more than seven auditors."

Thanh claimed that some independent auditing firms had been in operation only three years, with few experienced auditors, so the quality of their audits probably remained poor.

But, allowing more auditing firms to audit securities companies and fund managers should act as a "kind of unbinding valve [that] will help public firms published audited financial statements sooner, consistent with the Law on Securities," Thanh said. Most enterprises in Viet Nam end their fiscal year on December 31 of the previous year and are required to publish yearly financial reports in the early months of the following year, making them a peak time of auditing activity.

To ease the pressure, Mai advised businesses to select different fiscal years at different times of the year to audit and announce results, rather than everyone bunching up at the end of the year.

The 2003 Law on Accounting already permitted companies to select their own fiscal years to match business cycles.

"To change the fiscal year, enterprises only have to report to tax offices and then carry out accounting and auditing procedures normally under current regulations," Mai said.

"Companies around the world have selected their own fiscal years for a long time. I think that not only listed firms but also all other kinds of enterprises should change in order to follow international practice," Mai added.

Auditing firms should also merge to raise professional qualifications, Mai said. (VNS)