Increasing penalties by 20 times for auditing firms that violate regulations: Only heavy fines will be a sufficient deterrent.
Some argue that the penalties in the draft Independent Auditing Law are too high, but Deputy Prime Minister and Minister of Finance Ho Duc Phoc believes that raising the penalties is necessary to ensure deterrence.
This morning, November 7th, the National Assembly discussed in the plenary session the Draft Law amending and supplementing a number of articles of the Law on Securities, the Law on Accounting, the Law on Independent Auditing, the Law on State Budget, the Law on Management and Use of Public Assets, the Law on Tax Management, and the Law on National Reserves.
Regarding the draft revised Law on Auditing, a notable provision is the increase in fines by 20 times. Accordingly, the draft stipulates a maximum fine of 2 billion VND (for organizations) and 1 billion VND (for individuals). The current fines are 100 million VND for organizations and 50 million VND for individuals. In addition, the draft also increases the maximum statute of limitations for penalties to 5 years instead of the current 1 year.
Representative Thai Thi An Chung ( Nghe An ) argued that the above regulation has many inappropriate points.
Firstly, according to the Law on Handling Administrative Violations, the maximum fine of 1 billion VND only applies to violations in the fields of managing sea areas, islands and continental shelf; managing nuclear and radioactive materials, atomic energy; currency, precious metals, precious stones, banking, credit; oil and gas activities and other mineral activities; environmental protection, and fisheries. Therefore, the maximum fine in the draft revised Law on Independent Auditing is inappropriate.
Secondly, the proposed statute of limitations for penalties is 5 years, while the Law on Handling Administrative Violations stipulates a maximum statute of limitations of 2 years.
Furthermore, currently, the handling of administrative violations in the fields of auditing and accounting is regulated jointly by Decree 41/2018/ND-CP because these two fields are quite similar in nature. If the administrative penalty for auditing violations is increased, the question arises whether the penalty for accounting violations will also be increased.
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| Deputy Prime Minister and Minister of Finance Ho Duc Phoc. |
Delegates also questioned whether raising the penalties in the auditing sector to near the level of the highest-penalty sector, securities, was reasonable when compared to the nature, extent, and consequences of violations.
It can be observed that violations in the securities sector have a direct, immediate impact on hundreds, thousands, or even millions of transactions and investors. Meanwhile, violations in the auditing sector have an indirect impact, with a time lag and a much narrower scope of influence.
Delegates agreed with the view that penalties and the statute of limitations for penalties should be increased to ensure a deterrent effect on auditing firms and auditors who violate regulations, but suggested that the maximum penalty should only be doubled instead of increasing it 20 times as it is currently.
"If the regulations are as drafted, it will certainly affect the development of Vietnam's independent auditing industry, an industry that needs 3-4 times the current number of personnel compared to the market size," suggested delegate Thai Thi An Chung (Nghe An).
Representative Do Thi Lan (Quang Ninh) also argued that the regulations on penalty levels and statutes of limitations in the Draft Law on Independent Auditing are inconsistent with the current Law on Handling Administrative Violations. However, she proposed amending the Law on Handling Administrative Violations instead of lowering the penalty levels in the revised Draft Law on Independent Auditing.
According to Representative Do Thi Lan, increasing the administrative penalty for individuals by 20 times is appropriate. For organizations, the maximum administrative fine of 2 billion VND is too low, so it should be raised to 3 billion VND (a 30-fold increase compared to the current regulation). The reason for increasing the penalty for violating auditing firms is to ensure deterrence and to be commensurate with the scale of current auditing firms. Many large auditing firms have revenues exceeding 500 billion VND, some even reaching 1,000 billion VND, so increasing the penalty is appropriate.
Responding to concerns that the penalties for auditors and auditing firms are too high, Deputy Prime Minister and Minister of Finance Ho Duc Phoc stated that imposing penalties at the current legal level would not be a sufficient deterrent. Therefore, he argued that this specialized field requires heavier penalties. He also suggested that the statute of limitations for penalties should be extended, as the current 1-2 year limit would mean that many cases would be discovered after the statute of limitations has expired.
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