MINISTRY OF EDUCATION AND TRAINING
STATE BANK OF VIETNAM
BANKING ACADEMY
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NGUYEN THI QUYNH HUONG
IMPROVING INTERNAL CONTROL SYSTEM
OF VIETNAM BANK FOR AGRICULTURE AND RURAL
DEVELOPMENT ACCORDING TO COSO
INTERNATIONAL STANDARD
ECONOMICS PHILOSOPHY DOCTOR THESIS
HA NOI - 2020
THIS THESIS IS MADE AT
BANKING ACADEMY
Professional Adviser: 1. Associate Professor, PHD. LE VAN LUYEN
2. PHD. NGUYEN QUANG THAI
IMPROVING INTERNAL CONTROL SYSTEM
OF VIETNAM BANK FOR AGRICULTURE AND RURAL
DEVELOPMENT ACCORDING TO COSO
INTERNATIONAL STANDARD
Critic 1:
Critic 2:
Critic 3:
This Thesis will be presented to the Thesis Committee at Banking Academy at …., the …
day … year 2020
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INTRODUCTION
1. The urgency of research
After more than 10 years of becoming a member of the WTO, Vietnam's economy
has gained initial achievements. The operating environment and institutions of the banking
system have had positive changes with remarkable achievements in terms of regulatory
frameworks, internal governance, organizational structure, quality of human resources and
development of modern banking services. But the performance of the banks has been
vulnerable because of changes in the internal and external environment. In order to prevent
possible losses and risks of business activities, the banks must take effective measures.
The most important measure is that the banks must establish an effective internal control
system (ICS).
In response to that request, the Governor of State Bank of Vietnam (SBV) issued
Circular 44/2011/TT-NHNN stipulating the ICS and internal audit of credit institutions
(CIs), foreign banks. This legal document contributed to improve internal control to the
right level and its role. However, the actual implementation and evaluation of the suitability
of the ICS showed that the provisions of Circular 44/2011/TT-NHNN was still general, did
not really complete and meet regulations on the real role of an ICS in banking activities.
Therefore, the Governor of SBV issued Circular 13/2018/TT-NHNN regulating the ICS of
commercial banks, branches of foreign banks. The provisions of Circular 13/2018/TT-
NHNN are quite specific and clear, especially close to the international practices on the
establishment of the ICS. This is also consistent with the actual implementation of Basel II
in Vietnam. Accordingly, the ICS is defined prominently on three independent defenses to
control, prevent, detect and promptly handle risks in banking activities. In addition, Circular
13/2018/TT-NHNN also stipulates that ICS performs five functions: supervision of senior
management, internal control, risk management, internal assessment of adequate capital and
internal audit.
It can be said that developed countries have given the definition, the measure of
establishing the ICS for many years ago and have systematized globally recognized
standards. In 1992, Committee of Sponsoring Organizations (COSO) issued a report on the
first internal control framework. So far, through many adjustments and updates, the COSO
internal control framework has really become the basis for the establishment of ICS in the
world. The application of internationally recognized standards will help banks in Vietnam
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accelerate the progress and efficiency in the process of developing and improving ICS;
thereby saving time, funding and most importantly improving the conformity of the ICS
against the international practices in order to increase the management efficiency and meet
the rigorous requirements of integration.
Within the Vietnamese banking system, Vietnam Bank for Agriculture and Rural
Development (Agribank) is the largest banking system in terms of capital, assets, staff,
network of operations and number of customers... However, this is a banking system that
reveals many weaknesses in governance as well as control gaps. From the above reasons,
improving the ICS at Agribank becomes an urgent issue in management, which makes sense
in both theory and practice in the current period. Therefore, the author has chosen topic:
“Improving Internal Control System of Vietnam Bank for Agriculture and Rural
Development according to COSO International Standard” as the subject for the
doctoral thesis.
2. Overview of previous studies
2.1 The foreign studies
Research on internal control in relation to corporate governance is carried out in
several studies: The COSO 1992 report, research “Control in Business Organizations” of
Merchant, K.A (1985); research “Management Control System” by Anthony R.N and
Dearden, Jbedford (1989); research on risk management in relation to internal control by
Laura F. Spira and Michael Page (2002); the study of the relationship between business
strategy of enterprises and internal control of Faudizah, Hasnal and Muhamad (2005);
research on the role of market and entrepreneurship orientation and internal control
affecting on the new product development activieties of Chinese Firms... by Yuan Li, Yi
Liu, Youngbin Zhao (2006); study on effects of the ICS on financail performance in an
university in Ugandan by Mawanda (2008); research on impacts of internal control strategy
on efficiency operation of organization of Thai listed firms by Varipin Mongkolsamai and
Phapruke Ussahawanitchakit (2012); The study of the impact of the ICS on financial
performance at health institutions in Ghana by Sahabi Ibrahim, Gordon Diibuzie and
Mohammed Abubakari (2017).
Research on internal control in relation to audit: Initial studies on internal control are
mainly in connection with internal audit and gradually supplement the objectives of internal
audit. The term of internal control appeared from Price Waterhouse Auditing Company. In
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1905, Robert H. Montgomery gave his opinion on the content of the internal inspection
system that later evolved into internal control in “Auditing - Theory and Practice”. In 1929,
the announcement of the Federal Reserve System (FED) for the first time introduced the
concept of internal control. In 1936, American Institute of Certified Public Accountants
(AICPA) also introduced the concept of internal control, supplementing the objective of
internal control which is to ensure accurate accounting data. Later, in the book “Modern
Internal Audit - Evaluation of activities and control systems” by Victor Z. Brink and Herbert
Witt (1941), the ICS was also mentioned with relatively full comments of internal audit. In
1949, AICPA added the objective of promoting effective operation and encouraging the
compliance of management policies into the concept of internal control. After 1949, AICPA
also issued many audit standards addressing different concepts and aspects of internal control.
In 1958, in the report on SAP 29 (Statement on Auditing Procedure Statement) of the
Committee on Auditing Procedure (CAP) under AICPA, it was the first time to distinguish
internal control in terms of management and accounting. In 1962, this organization issued
SAP 33, further clarifying the concept of internal control in broad sense; since then, the
auditing standards have been developed, which require the auditing company to limit the
internal research on accounting. In 1972, CAP issued SAP 54 “Understanding and evaluating
internal control”, which introduced four accounting control procedures. After that, AICPA
issued Statement on Auditing Standard (SAS) to replace SAP, in which SAS1 (established in
1973) on the responsibilities of auditors review SAP 54 and provide a more complete
framework for accounting control. In 1976, Alvin A. Arens and James K. Loebbecke in
“Auditing: An Integrated Approach” gave the reason for companies to build an ICS. In 1992,
the COSO Report, “Internal Control - Integrated Framework”, became the theoretical
framework for ICS which was studied and presented in a complete and systematic manner.
Research on internal control in the relationship of financial accounting
information quality of listed companies was conducted through a number of studies such as
study of the US Committee of Sponsoring in 1987; Defond's research (1991); Angella.A’s
study (2009); J. Altamuro’s research (2010); N. KLai’s research (2011); Alvin A.Arens’s
research (2012). The above studies all show the important impact of internal control on the
quality of financial accounting information of listed companies.
Research on internal control in the banking sector: Applying regulations on
internal control of COSO to CIs and banks, the Basel Report of the Basel Committee