CIRCULAR

GUIDING THE FINANCIAL MANAGEMENT AND BUSINESS COST-ACCOUNTING REGIME APPLICABLE TO STATE ENTERPRISES ENGAGED IN INDEPENDENT AUDITING ACTIVITIES

In furtherance of Decree No.59-CP of October 3, 1996 of the Government issuing the "Regulation on the financial management and business cost-accounting applicable to State enterprises", the Ministry of Finance hereby provides the following guidance on the financial management regime applicable to State enterprises engaged in independent auditing activities (hereafter referred to as auditing enterprises for short):

I. GENERAL PROVISIONS:

1. This Circular applies to State enterprises doing business in the fields of auditing, financial and accounting consultancy and other service activities according to their functions stated in their operation statutes.

2. Auditing enterprises assigned by the State the capital, land and other resources shall have to efficiently use, preserve and develop the capital assigned to them; have civil rights and obligations and take own responsibility for their business activities.

3. Auditing enterprises (including their attached branches) shall submit to the inspection and supervision by the financial agency in its capacity as a State management agency and the owner's representative over the State capital and property at enterprises according to the Government's mandate.

II. SPECIFIC PROVISIONS:

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1. Auditing enterprises shall be provided with the initial statutory capital by the State upon their establishment, which conform to the auditing service's legal capital level prescribed in Decree No. 50-CP of August 28, 1996 of the Government. In the course of business activities, the State may, when necessary, consider and allocate additional capital to the enterprises for performing additional tasks assigned by the State.

2. The State shall allocate State-owned capital to auditing enterprises. Such capital allocation shall comply with the provisions of the Law on State Enterprises and other provisions of law.

3. Auditing enterprises shall be entitled to use their capital and funds for business activities on the principle of "efficient use, preservation and development of capital". In cases where the sources of capital and funds are used for purposes other than the prescribed ones, the principle of "repayment" must be observed.

4. Capital management:

4.1. Auditing enterprises shall be entitled to use capital, property and the land use right under their management for outside investment. Particularly, the use of the "land use right" for investment outside the enterprises must comply with the provisions of the Land Law.

When making investment outside the enterprises, auditing enterprises shall have to abide by the provisions of law, refrain from altering their form of ownership, and to ensure the principle of efficient use, preservation and development of capital, increasing revenues and not affecting their principal business tasks assigned by the State.

4.2. Forms of outside investment by auditing enterprises include:

- Purchase of bonds, bills and equities;

- Entering into joint ventures or contributing shares to other enterprises.

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6. Auditing enterprises shall comply with the regime on the deduction and use of fixed assets depreciation. All the money derived from the depreciation of the State's fixed assets shall be left to the enterprises for reinvestment, replacement and renewal of fixed assets and for use to meet the business demands in accordance with the State regulations

7. Auditing enterprises shall be entitled to mobilize capital in the forms of borrowing, accepting capital contributions as well as other forms prescribed by law. The capital mobilization must comply with current provisions of law (without altering the State ownership form of auditing enterprises).

8. Property management:

8.1 Auditing enterprises shall re-evaluate their property in the following cases:

- Inventorying and re-evaluating property by decision of the State;

- Using property for entering into joint venture or making capital contributions (upon contributing and receiving back property for both cases);

- Equitizing or diversifying the ownership forms;

- Adjusting the prices for ensuring the real value of the enterprise.

8. 2. The inventory and re-evaluation of property must comply with the State regulations. Any increase or decrease in value due to the property re-evaluation shall be accounted as capital increase or decrease after the financial agency so approves.

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When liquidating property, enterprises shall have to set up a liquidation board. and when selling the liquidated property an auction must be held in accordance with the provisions of law.

Within 10 days after liquidating its property, the enterprise shall have to report to the agencies that manage State capital and property at enterprises and the agencies that has decided the establishment of enterprises.

The increase or decrease difference between the value earned from the liquidation of property and the remaining value of the liquidated property as well as the sale or liquidation costs (if any) shall be accounted in the business result of the enterprise (other revenues).

10. Auditing enterprises shall have to preserve the capital allocated by the State according to the following provisions:

- Abiding by the State regulations on capital and property management and use.

- Buying property insurance according to the State regulations.

- Being entitled to account in the business costs the following reserves:

+ The reserve for the price decrease of goods left in stock, which is the amount of price decrease of supplies and goods left in stock expected to occur in the following business period.

+ The reserve for the price decrease of the hard-to-recover debts: which is the debt value expected to be lost in the following business period because debtors are incapable of repayment.

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The setting up and use of these reserves shall comply with the State regulations.

SECTION 2.- TURNOVER - BUSINESS EXPENSES

I. Turnover from an auditing enterprise's business activities is the total amount of money earned by the company's office, branches and representative offices attached to the company, including turnover from business activities and other activities. Concretely:

A. Business activities

1. Turnover from auditing activities:

- Auditing of financial statements;

- Auditing of the settlements of capital construction works;

- Auditing of projects;

- Auditing to determine the value of property for equitization, merger, dissolution; making capital contributions to joint ventures, etc.;

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2. Turnover from consultancy activities:

- Consultancy on financial management, accounting and tax laws;

- Consultancy at the specific requests of customers.

3. Turnover from other business activities:

- Installation of computer software programs;

- Sale of documents;

- Training;

- Earnings from contractual business cooperation activities.

B. Other activities

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1.1. Turnover from financial activities: earnings from the lease of property (buildings, means, vehicles...)

1.2. Revenues from financial activities:

- Deposit interests;

- Loan interests;

- Revenues from the sale and purchase of bonds, bills and shares...;

- Revenues from joint venture activities, equities...

2. Turnover from irregular activities including: revenues from irregular activities such as:

- Revenues from the sale of fully depreciated means and instruments which are damaged or no longer in use;

- Payable amounts which are not required to be paid for the reasons from the creditor(s);

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- Bad debts already written off but now recovered;

- Unused portion of the reserve earmarked in the previous year for bad debts.

- Other irregular revenues.

All the turnover of an auditing enterprise arising in each business period must be indicated in valid invoices as well as vouchers and fully recorded in accounting books according to the State regulations.

Enterprises shall have to determine and clearly indicate taxable turnover amounts for each kind of activity in accordance with the provisions of tax laws, decrees and guiding circulars currently in force.

Any turnover or revenue of an enterprise not included in accounting books shall be repaid into the State budget and a fine shall be imposed thereon according to current regulations.

2. The levels of the auditing and consultancy fees shall be negotiated by the two parties (the auditing enterprise and the customer) on the basis of:

- The volume and the complexity of the work to be audited;

- The domestic and foreign market prices of auditing (in case of contracts for auditing international projects)'

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- Ensuring adequate expenditures and proper percentage of profits.

3. Unfinished products of auditing enterprises are auditing and consultancy contracts which are halfway performed at the end of the calendar year (the fiscal reporting year) reflecting:

- Incomplete costs of the provision of auditing and consultancy services, which have arisen;

- Auditing and consultancy fees which are not fully collected or the to-be-collected amounts have not been determined yet due to the unavailability of the contract liquidation report;

- Money collected in advance from customers which are the capital advanced by the customers for the work designated in the signed contract.

4. Expenditures of an auditing enterprise include: expenses for each auditing or consultancy activity; financial activity and other activities and general expenses for its activities.

The directors of auditing enterprises shall have to make an estimate of annual business expenditures which shall serve as a basis for running business and managing their enterprises' expenses.

Expenses for each activity:

A. Business activities:

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- Remunerations for laborers not managed by the enterprise such as collaborators, technical engineers, specialists.

- Costs of translation and printing of documents and making auditing reports.

- Occupational insurance (or the risk reserve fund because of the absence of occupational insurance in Vietnam).

2. Expenses for consultancy activities:

- Remunerations for laborers not managed by the enterprise.

- Occupational insurance (or the risk reserve because of the absence of occupational insurance in Vietnam).

3. Expenses for other business activities:

3.1 Expenses for the installation of computer software programs.

3.2 Expenses for the sale of documents.

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- Sale expenses: packaging and marketing;

- The reserve fund for the price decrease of goods left in stock.

3.3 Expenses for training services:

- Expenses for compilation of materials;

- Expenses for printing teaching materials;

- Classroom rental;

- Payments to lecturers: tuition fee, lodging, meals and travel.

- Spendings on drinks for the training course;

- Spendings on stationery for the training course;

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- Expenses for the opening and closing ceremonies of the training course.

3.4. Expenses for activities under business cooperation contracts.

B. Other activities:

1. Expenses for financial activities (lease of buildings, financial investment):

- Depreciation of leased buildings;

- Repair of leased property;

- Maintenance.

2. Expenses for irregular activities:

- Expenses for the sale or liquidation of fixed assets (including the remaining value of the liquidated or sold fixed assets);

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- Expenses for the recovery of written-off debts;

- Other irregular expenses.

General expenses for all activities

(apart from expenses for each above-mentioned activity)

- Pays for laborers (managed by the enterprise);

- Social and medical insurance premiums, the trade union's fund according to the wage fund;

- Depreciation of the enterprise's fixed assets (according to the proportion registered with the State);

- Labor tools, office equipment....

- Stationery for the enterprise's employees;

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- Expenses for workshops and professional training;

- Expenses for publicizing and advertising the enterprise's activities;

- Expenses for property repair;

- Expenses for insurance of the enterprise's property;

- Expenses for clothing (as prescribed by the State);

- Expenses for quarterly and annual preliminary reviews and sum-up meetings...

- Foreign mission tours:

+ Study tours abroad;

+ Overseas training.

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- Expenses for recruitment of employees, grade promotion and skill raisin and training of cadres to improve their knowledge.

- Expenses for working trips: hiring of means, accommodation, residence...

- Expenses for marketing, public relations and receptions. The spending level is prescribed in Decree No. 59-CP with specific items according to the characteristics of the auditing service;

- Renting working offices (if any);

- Severance allowances for laborers as prescribed in Decree No. 198-CP of December 3, 1994;

- Reserve for bad debts (if any);

- Membership fees paid to associations related to the enterprise's business activities;

- Costs of electricity, water, telephones...

- Taxes and fees (of tax nature) to be remitted to the budget such as:

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+ License tax

+ Land rent.

- Expenses for auditing the enterprise;

- Other expenses (apart from those listed above).

The above-mentioned expenses shall be accounted according to the actual expenses approved by the enterprise's director who takes own responsibility for his/her decisions.

All expense vouchers must be rational and valid according to the State regulations. The person who decides expenditures which are at variance with the prescribed regime shall have to make compensation therefor.

Regarding wage payments: Enterprises shall base themselves on Circulars No. 13/LDTBXH-TT and No. 14/LDTBXH-TT of April 10, 1997 of the Ministry of Labor, War Invalids and Social Affairs to elaborate labor norms. On the basis of the registered labor norms and the wage regime prescribed by the State, enterprises shall elaborate the unit price of wages and submit them to the competent agency for approval.

The deduction for setting up the wage fund and its use must be based on the approved unit price of wages and the business efficiency achieved by the enterprise in each period.

Annually, each enterprise shall have to settle its wage fund with the agency that has decided to establish the enterprise, the agency that manages State capital and property at enterprises and the tax agency.

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1. The profit of an auditing enterprise is the total of profits of dependent cost-accounting branches summed up and determined at the parent enterprise, which is the difference between the total revenues and the total expenditures (expenditures plus turnover tax) at each attached unit:

The auditing enterprise's profit = Total revenues - (total expenditures + turnover tax)

Profits shall be separately determined for each activity.

2. The annual total profit of an auditing enterprise is distributed as follows:

2.1. Profit tax payment according to law;

2.2. Payment of the levy on the use of State budget capital;

2.3. Payment of such fines as:

- Fines on the violations of the budget collection and payment discipline;

- Fines on administrative violations;

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- Valid expenses not yet subtracted when the payable profit tax is determined.

2.4. Offsetting those losses which have not been subtracted from the pre-tax profit;

2.5. After the four aforesaid items, the enterprise shall be allowed to deduct the remaining profit to set up various funds as follows:

- The development investment fund: deducting at least 50% of the remaining profit without any limit on the maximum amount;

- The financial reserve fund: deducting 10% - the fund's balance must not exceed 25% of the enterprise's statutory capital;

- The reserve fund for job loss allowances: deducting 5% - the fund's balance must not exceed the amount equivalent to six months' wages.

- After making deductions to set up the three aforesaid funds the enterprise is allowed to further deduct the remaining profit to set up the welfare fund and the reward fund according to the following regulations:

+ Not exceeding three months' actual wages if the ratio between the profit and the fiscal year's capital is not lower than that of the previous year.

+ Not exceeding two months' actual wages if the ratio between the profit and the fiscal year's capital is lower than that of the previous year.

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3. Auditing enterprises are allowed to use the following concentrated funds:

3.1. The development investment fund:

The development investment fund shall be concentrated and managed by the auditing enterprise, used to meet the enterprise's investment requirements according to the State regulations.

3.2. The financial reserve fund: is used to offset property losses and damages incurred by the enterprise in the course of business activities and deducted to form the parent enterprise's financial reserve fund (if it is the financial reserve fund of a dependent unit).

3.3. The reserve fund for job loss allowances: is spent on:

- Training of employees due to the structural or technological change;

- Fostering of laborers to improve their professional skills;

- Allowances for laborers who regularly work at the enterprise now lose their jobs as prescribed by Decree No. 72-CP of October 31, 1995.

3.4. The reward fund is used for:

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- Giving irregular rewards to the enterprise's individual employees or collectives with technical innovations that yield business efficiency. The reward level shall be decided by the director;

- Giving rewards to individuals and collectives outside the enterprise that have economic contract relations with the enterprise and have well fulfilled the contract conditions and made many contributions to the enterprise's business activities. The reward level shall be decided by the director.

3.5. The welfare fund is used for:

- Investment in constructing or repairing the enterprise's welfare facilities;

- Public welfare activities of the collective of the enterprise's employees, social welfare;

- Difficulty allowances, including cases of retirement due to loss of working capacity..., the allowance level shall be decided by the director after consulting the enterprise's trade union.

SECTION 4.- OBLIGATIONS TOWARD THE STATE BUDGET

Auditing enterprises shall have to fulfill all the obligations towards the State budget in accordance with the tax legislation currently in force.

SECTION 5.- ACCOUNTING, STATISTIC AND AUDITING REGIME

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- The accounting regime shall comply with Decision No. 1141-TC/QD/CDKT of November 1, 1995, taking into account peculiar characteristics of auditing activities in an appropriate manner (approved by the Ministry of Finance);

- The financial reports of enterprises must be audited according to law.

- The director of an enterprise shall have to draw up the settlement of revenues and expenditures of the enterprise, including its attached branches, make public the enterprise's financial status under the guidance of the Ministry of Finance and be accountable before law for the data publicized.

- The financial agency shall have to inspect and supervise the publicized data of the enterprise, including its attached branches.

SECTION 6.- FINANCIAL PLANNING WORK

The directors of auditing enterprises shall make annual financial plans in conformity with the business plan and register them with the Ministry of Finance. Every quarter and in the end of each year, they shall report to the Ministry of Finance the situation of the implementation of the business plan and the financial plan according to the form prescribed by the State.

III. IMPLEMENTATION PROVISIONS

1. This financial mechanism takes effect 15 days after its signing.

2. Apart from the provisions above, auditing enterprises shall have to fully comply with the State financial regimes currently in force.

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In the course of implementation any arising problem should be promptly reported to the Ministry of Finance for handling.

THE MINISTRY OF FINANCE
VICE MINISTER




Pham Van Trong