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INTERNAL AUDIT IN ESG FOR SUSTAINABILITY REPORTING –

FUNDAMENTAL CONCEPTS AND FRAMEWORKS

171
Vu Thuy Linh

Abstract: Whilst today’s world and its environmental, social and governance (ESG) risks have
increased more than ever, many organizations are still facing challenges in evaluating the indirect
impact of social responsibility, lack of awareness among stakeholders about the importance of ESG and
difficulty in assessing accurate information for green growth. It is in this context that the internal audit
functions add value to the company by providing assurance and consulting on the effectiveness of
sustainable governance, risk management and internal control processes. The article proves the
fundamental concepts and frameworks of ESG-related risks and impacts, approach, procedures,
reporting and discloses issues following sustainability standards. Therefore, it provides
recommendations for Vietnamese businesses’ context to achieve sustainable development goals.
Keywords: ESG, risk, sustainability, internal audit

1. Introduction
ESG is widely recognized as a business problem and addresses serious
management’s concerns in the context of the corporate environment facing rapid
changes in technology, shifting regulations, the emergence of new risks and the impact
this was having upon the internal audit function. ESG serves as a framework to help
stakeholders make sense and measure how sustainably an organization is operating. In
the past decades, much research has focused on trying to resolve fraudulent corporate
financial reporting by applying a traditional internal audit function and “a suitable

internal control framework for financial reporting.” Unfortunately, however, regulations
to require the evaluation and reporting governance, controls, and risk management for
corporate social responsibilities were considered but not approved in practice. The
financial system efficiently distributes financial capital but does not focus on equity,
fairness, or other capitals. Thus, management considers both financial and nonfinancial

reporting to maintain efficiency and sustainable development.
Fast-forward to now, it is accepted that a sea change in attitudes of top management
and relevant parties about sustainability and ESG reporting. It clearly states that non-
financial information about sustainability becomes more important, and the internal
audit plays essential roles in adding value to the corporation by evaluating and
consulting the effectiveness of ESG-integrated governance, risk management and
controls processes. The purpose of this study is to understand the internal audit approach
regarding ESG engagement process including planning, performing, reporting, and

monitoring and the gap between the existing financial framework and non-financial
framework for sustainability purposes. This research further addresses the need for a
comprehensive ESG reporting framework for corporate and its stakeholders to consider
for proper decision-making. To sum, it is important to build

171 Academy of Finance, Email: vuthuylinh@hvtc.edu.vn
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