What legal risks may an enterprise face for financial statement fraud?

Financial statement fraud is no longer merely an internal accounting issue; it has become a significant legal risk in business operations. Many enterprises have faced tax inspections, audits, administrative sanctions, and even criminal investigations simply as they manipulated revenue figures, concealed liabilities, or distorted financial data. Properly identifying fraudulent conduct, understanding the associated legal liabilities, and adopting appropriate response strategies from the outset are critical factors in minimizing damage and protecting an enterprise's legitimate rights and interests.

I. Why do many enterprises become entangled in legal proceedings due to adjustments to financial statements?

In practice, many enterprises believe that the “adjustment of figures” in financial statements is only a technical measure intended to balance revenue and profits or improve their financial image. However, when such adjustments distort the true nature of transactions, conceal liabilities, recognize fictitious revenue, or provide misleading information, they cease to be ordinary accounting errors and may instead constitute financial fraud.

It is also why numerous enterprises have been subjected to inspections, administrative sanctions, or even criminal investigations relating to fraudulent financial reporting practices.

II. Identifying financial statement fraud by enterprises

1. What signs indicate that an enterprise may be engaging in financial statement fraud?

Certain warning signs commonly raise concerns among tax authorities, auditors, and investors regarding possible financial statement fraud by enterprises, including:

• Revenue and profits increase abnormally while actual cash flow remains low or consistently negative;
• Revenue is recognized before the transaction has occurred;
• Liabilities, bad debts, or financial obligations are concealed, or provisions are inadequately recognized;
• Significant discrepancies exist between accounting records, tax filings, and supporting documents;
• Financial figures are repeatedly adjusted near the end of an accounting period to artificially improve business performance.

2. Why does the recognition of fictitious revenue or concealment of liabilities often lead to serious legal consequences?

The recognition of fictitious revenue or concealment of liabilities causes financial statements to no longer accurately reflect an enterprise’s actual financial condition. Such conduct is typically intended to inflate profits, conceal losses, enhance borrowing capacity, attract investment capital, or create a misleading appearance of credibility for business partners and investors.

However, once financial data has been intentionally distorted, the enterprise may face not only tax reassessments and administrative sanctions but also potential criminal liability if the conduct is fraudulent in nature and causes damage to the State, investors, or credit institutions.

3. What objectives are commonly pursued through financial statement fraud?

In practice, financial statement fraud is often intended to create a stronger financial image than actually exists in order to achieve objectives such as obtaining bank loans, raising investment capital, participating in tenders, increasing corporate valuation, or concealing losses and financial instability.

In some cases, such conduct is also intended to reduce tax liabilities or maintain eligibility for business operations, stock exchange listing requirements, or commercial cooperation arrangements.

III. Legal issues relating to financial statement fraud

1. What legal risks may arise from financial statement fraud?

If an enterprise engages in conduct such as recognizing fictitious revenue, concealing liabilities, falsifying accounting records, or providing inaccurate financial statements, it may face a wide range of serious legal consequences.

Specifically, according to Article 13 of the Law on Accounting 2015, prohibited acts include falsifying accounting data, making fraudulent declarations, intentionally providing false accounting information, and excluding assets or liabilities from accounting records.

Regarding administrative sanctions, under Points a and b, Clause 3, Article 8 of Decree No. 41/2018/NĐ-CP, acts such as falsifying accounting documents or intentionally providing or certifying false accounting information may result in fines ranging from 20,000,000 VND to 30,000,000 VND for individuals. Organizations committing the same violations may be subject to fines at double the applicable amount under the general provisions of the Decree.

Furthermore, if financial statements are falsified to conceal an enterprise’s financial condition, evade obligations, or cause substantial damage to the State, investors, credit institutions, or other stakeholders, the individuals involved may also take criminal liability for offenses such as the Crime of violating accounting regulations causing serious consequences under Article 221 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025).

2. When is an accounting violation subject to criminal liability rather than administrative sanctions?

An accounting violation may be subject to criminal prosecution when it goes beyond ordinary professional errors and demonstrates intentional dishonesty, falsification of data, or causes serious consequences.

Pursuant to Article 221 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025) concerning the Crime of violating accounting regulations causing serious consequences, the following conduct may constitute criminal offenses:

• Falsifying, fraudulently altering, or erasing accounting records and documents;
• Providing or certifying false accounting information;
• Omitting assets or liabilities from accounting books;
• Destroying or intentionally damaging accounting records before the expiration of the statutory retention period.

If such conduct causes damage of 100 million VND or more, or if the offender has previously been subject to administrative sanctions or disciplinary measures and continues to commit violations, criminal liability may arise.

3. How are the roles of the director, chief accountant, internal auditors, and independent auditors assessed when violations occur?

When violations relating to financial statement fraud occur, competent authorities will assess the role, responsibility, and degree of involvement of each individual and department concerned.

Specifically, the legal representative or director is responsible for organizing and managing the company’s operations and approving its financial statements. According to Article 50 of the Law on Accounting 2015, the legal representative must organize accounting activities and ensure that financial statements are prepared and presented truthfully and completely in accordance with applicable regulations.

With respect to the chief accountant, Article 55 of the Law on Accounting 2015 provides that the holder of such a position is responsible for ensuring compliance with accounting laws, organizing the accounting system, and preparing financial statements in accordance with accounting standards. If a chief accountant is aware of violations yet still signs off on inaccurate reports or participates in unlawful data manipulation, such a person may take joint liability.

In addition, internal audit departments and independent auditing firms are responsible for examining and evaluating the accuracy and reasonableness of financial information. If they intentionally overlook violations, certify inaccurate information, or demonstrate professional negligence resulting in serious consequences, they may also be subject to legal liability under applicable laws.

4. How can inconsistent explanations or the submission of inaccurate documents be detrimental during an investigation?

During inspections, audits, or investigations, inconsistent explanations among individuals or departments within an enterprise, or the submission of inaccurate documents and data, may be regarded as indications of concealment of violations or a lack of good-faith cooperation with competent authorities.

In particular, according to Article 221 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025) concerning the Crime of violating accounting regulations causing serious consequences, acts such as providing or certifying false accounting information, falsifying accounting documents, or making fraudulent declarations may constitute grounds for criminal prosecution where serious consequences arise.

Furthermore, inconsistent explanations may:

• Lead to an expansion of the scope of inspections or investigations;
• Result in adverse assessments regarding transparency and cooperation;
• Make it more difficult to establish the true nature of transactions or the origin of financial data;
• Increase the likelihood that preventive measures, asset seizure orders, or liability proceedings against relevant individuals will be imposed.

IV. Common concerns of individuals and enterprises under investigation for financial statement fraud

1. Is a person who signs documents under internal procedures automatically subject to criminal liability?

Not every individual who signs documents under internal procedures is automatically subject to criminal liability. However, according to Point d, Clause 2, Article 29 of the Law on Accounting 2015, a person signing financial statements is responsible for the contents that such an individual has certified.

Accordingly, the competent prosecuting authorities will assess the specific role, level of involvement, and awareness of the signatory in the matter. If an individual merely signed documents as assigned, was unaware of any violations, and did not participate in concealing or legitimizing inaccurate financial data, there may be insufficient grounds for criminal prosecution.

Conversely, if the individuals knowingly certified inaccurate figures, cooperated in, or facilitated the falsification of financial statements, they may still be held jointly liable. Pursuant to Article 221 of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025) concerning the Crime of violating accounting regulations causing serious consequences, acts such as providing, certifying, or confirming false accounting information or falsifying accounting documents resulting in serious consequences may lead to criminal liability.

2. If an enterprise voluntarily corrects its financial statements before criminal charges are initiated, can it be considered a mitigating circumstance?

Pursuant to Article 51 of the Criminal Code 2015 (as amended and supplemented in 2017), circumstances such as voluntarily remedying consequences, making truthful declarations, and actively cooperating with competent authorities may be considered mitigating factors in determining criminal liability.

Accordingly, in matters involving financial statement fraud or misrepresentation, if an enterprise or individual proactively identifies errors, voluntarily corrects financial data before criminal proceedings are initiated, returns any unlawfully obtained benefits, remedies damages, or fully cooperates with competent authorities, such actions may be taken into account as mitigating circumstances when the case is resolved.

3. How can a lawyer assist enterprises and individuals during the initial verification stage?

From the earliest stage of verification, a lawyer can assist enterprises and individuals in reviewing documents, assessing legal risks, and advising on appropriate response strategies before the matter escalates into a broader investigation.

In addition, a lawyer may assist by:

• Reviewing the legality of accounting records, financial statements, and accounting documents;
• Advising on the proper preparation of explanations and submission of documents in compliance with legal requirements;
• Minimizing statements or documentary submissions that could adversely affect the client during interactions with competent authorities;
• Protecting the lawful rights and interests of managers, accountants, and individuals who signed relevant documents.

4. What documents or evidence are particularly important for defending an accused person?

In cases involving financial statement fraud or misrepresentation, the following categories of documents often serve as critical evidence in defending the accused:

• Accounting records, books, source documents, and financial statements;
• Emails, internal directives, approval procedures, and work assignment records;
• Contracts, invoices, payment documents, and materials evidencing actual transactions;
• Meeting minutes, internal explanations, or documents demonstrating the scope of responsibility assigned to each individual;
• Audit reports, data reconciliation results, or documents evidencing proactive corrective actions.

5. What should be done to minimize losses when assets are seized or bank accounts are frozen?

When subject to asset seizure or account-freezing measures, enterprises and individuals should promptly review the relevant procedural decisions, identify the scope of the affected assets, and prepare comprehensive documents proving the origin, ownership, and legality of the assets concerned.

Pursuant to Articles 128 and 129 of the Criminal Procedure Code 2015 (as amended and supplemented in 2025), asset seizure and account-freezing measures may only be applied to the extent necessary to secure judgment enforcement, compensation obligations, or criminal liability. The law also requires that only the portion of assets corresponding to the obligation being secured may be subject to such measures.

In practice, to minimize losses, enterprises should:

• Proactively cooperate with authorities and provide clear explanations regarding the origin of assets and cash flows;
• Clearly separate personal assets from corporate assets;
• Request a review and reduction of the scope of seizure or freezing measures if they exceed the value necessary to secure the relevant obligation;
• Engage legal counsel from the outset to protect their rights and handle complaints or petitions where the measures appear inappropriate or excessive.

V. Do you need a lawyer to advise or defend a case involving financial statement fraud by an enterprise?

When an enterprise or individual becomes subject to inspection or investigation in connection with financial statement fraud, obtaining legal assistance at an early stage is crucial for managing risks and safeguarding lawful rights and interests. With extensive experience in matters involving accounting, taxation, corporate finance, and criminal proceedings, NPLaw can assist in reviewing documentation, assessing potential legal risks, advising on explanatory strategies, representing clients before competent authorities, and providing legal defense where criminal proceedings are contemplated.

In cases involving financial statements, careless handling or inappropriate explanations may cause an enterprise to lose important legal advantages from the outset. Therefore, seeking legal advice proactively enables enterprises to minimize losses, protect their reputation, and develop response strategies tailored to their specific circumstances.

The information provided above is for reference purposes only. Should you require detailed legal advice regarding a specific matter, please contact NPLaw for prompt assistance.