In the context of accounting as a global business language, allowing the application of IFRS will help state management agencies, owners, investors, especially foreign investors, have tools to evaluate and compare financial information between entities in the same language, a common standard for making relevant economic decisions. One of the reasons why Vietnam is not currently recognized as a country with a market economy is because the standard system of financial statements to reflect the economic transactions of enterprises is still incomplete and outdated compared to the current market economy. with international practices. Therefore, allowing the application of IFRS in Vietnam will contribute to the international community's early recognition of Vietnam's full market economy, thereby opening up foreign direct investment (FDI) flows. demonstrates the Government's strong commitment in protecting investors and creating a healthy business environment, serving the goal of sustainable development.
Roadmap to apply IFRS in Vietnam #
On March 16, 3, the Minister of Finance issued Decision No. 2020/QD-BTC approving the scheme on application of international financial reporting standards in Vietnam.
This application process consists of 3 phases:
• Preparation period: from 2020 to the end of 2021:
- The Ministry of Finance shall develop and issue necessary documents and legal documents
- Scheme on application of financial reporting standards in Vietnam (before March 3);
- Translation of IFRS standards into Vietnamese (completed before December 12 and announced before March 2020);
- Legal documents and financial mechanism on how to apply IFRS (before November 15, 11);
- Training resources as well as deployment process for businesses.
• Voluntary application period: from 2022 to the end of 2025:
Enterprises with the need, ability and voluntary application of IFRS will be selected by the Ministry of Finance.
- Separate financial statements: 100% foreign-owned FDI enterprises have the need and ability to voluntarily apply.
- Consolidated financial statements: Listed parent company, large-scale parent company in a state-owned economic group or unlisted, parent company whose loans are being financed by financial institutions main and other parent companies.
• Compulsory application period: after 2025:
Enterprises will apply IFRS mandatory based on their availability, needs as well as the actual situation and specific cases.
How to apply IFRS in Vietnam #
- When applying IFRS voluntary or mandatory, businesses need to follow the principle of consistency throughout the entire financial year;
- Apply all IFRSs that have come into force under the IASB (International Financial Reporting Standards Board) regulations at the same time. If there is an addition, replacement or amendment, the Ministry of Finance needs to announce the translation in a timely manner so that it can be uniformly deployed for enterprises to apply.
- Differences between taxable income and accounting profit (if any) should be presented and explained in detail in the financial statements.
- Criteria and guidelines to help evaluate financial information of enterprises will be issued by the Ministry of Finance to ensure comparability between enterprises applying or not applying IFRS.
- The list of enterprises voluntarily or compulsory to apply IFRS standard financial statements will be announced by the Ministry of Finance on the Portal.
Difficulties and challenges when applying IFRS in Vietnam #
Capital and financial markets are not developed enough
IFRS uses the fair value principle. And to be able to use this principle effectively, markets need to function efficiently. Thereby, we can get accurate and reliable financial data. In addition, the goal of IFRS is to record financial transactions in an economy rich in complex financial instruments.
Meanwhile, Vietnam has an underdeveloped financial and capital market because it is in a volatile period of transition to socialism as well as Vietnam's lack of popularization of financial instruments. . Since then, in short, the application of IFRS in Vietnam will face difficulties from this.
Businesses often do not want to disclose their financial situation
The financial situation is the health of every business. Therefore, many businesses tend not to go public in order to avoid being affected by their ratings, securities value and listing conditions on the stock market. This is the obstacle and challenge when applying IFRS financial reporting standards in Vietnam.
Indeed, if IFRS is to be applied, the financial position of the enterprise needs to be accurate and has an explanation from the enterprise, making them more reliable and reflecting the true situation of the enterprises, making the enterprises operate. Inefficient operations will not be able to have positive financial statements as they are now.
IFRS knowledgeable human resources are lacking
Currently, there are very few human resources knowledgeable about IFRS in Vietnam because only a few employees who have converted from VAS to IFRS and are working at foreign companies have prior knowledge of these standards. This creates the challenge of scarce human resources knowledgeable about IFRS to put IFRS into practice in Vietnam.
Legal documents also have overlaps
Current legal documents of Vietnam that regulate financial activities of business organizations include 3 documents:
- Policy of tax;
- Financial mechanism;
- Financial reporting standards.
There are up to 3 legal documents regulating that there is no consistency when applying, even overlapping, not knowing which regulations and principles to apply to transactions with differences in the way they are applied. handling between IFRS and legal documents.
What businesses need to prepare? #
From the roadmap to apply IFRS in Vietnam as well as difficulties and challenges when applying, it can be seen that when converting VAS to IFRS, we need to prepare:
• For Businesses:
- Identify your business object and the need to apply IFRS to develop a roadmap and application plan;
- Reorganize the accounting apparatus, ensure there is a regulation on coordination with other departments in communicating information when implementing IFRS;
- Conduct accounting training or use accounting and financial services to meet the requirements of converting from VAS to IFRS;
- Building an information technology system to easily connect divisions, parent companies and subsidiaries, which can provide quick financial statements at any time;
- Develop a process to convert VAS to IFRS specifically for your business, towards transparency of information in financial statements.
• For employees working in the field of financial accounting:
- Master the difference between VAS and IFRS to effectively and accurately apply to businesses;
- Access and use the service of converting financial statements from VAS to IFRS as well as consulting the implementation roadmap from experts;
- Clearly distinguish concepts as well as differences when presenting financial statements according to IFRS and regulations on tax administration;
- Having an understanding of the business environment, information technology systems and understanding of the nature of transactions when preparing and presenting financial statements.
- Forming a quick and professional way of thinking and working, always promptly responding to the requirements of the business.
If your business has issues that need support and advice, please contact our Consulting Department immediately for timely answers.