In a context where accounting is considered a global business language, allowing the application of IFRS will provide government agencies, owners, investors, and especially foreign investors with a tool to evaluate and compare financial information between entities using a common language and standards, enabling them to make appropriate economic decisions.
One of the reasons Vietnam is not yet recognized as a market economy is that its financial reporting standards, which reflect the economic transactions of businesses, are still incomplete and outdated compared to international practices.
Therefore, allowing the application of IFRS in Vietnam will contribute to the international community's early recognition of Vietnam as a fully-fledged market economy, thereby facilitating the flow of foreign direct investment (FDI), demonstrating the Government's strong commitment to protecting investors and creating a healthy business environment, serving the goal of sustainable development.
1. The roadmap for implementing IFRS in Vietnam
On March 16, 2020, the Minister of Finance issued Decision No. 345/QD-BTC approving the Project on the application of international financial reporting standards in Vietnam.
This implementation roadmap consists of 3 phases:
🗓️ Preparation phase: from 2020 to the end of 2021
- The Ministry of Finance develops and issues the necessary legal documents and regulations.
- Project on applying financial reporting standards in Vietnam (before March 2020);
- Translation of IFRS standards into Vietnamese (to be completed before December 2020 and published before March 2021);
- Legal regulations and financial mechanisms on how to apply IFRS (before November 15, 2021);
- Training human resources and implementation processes for businesses.
🗓️ Voluntary application period: from 2022 to the end of 2025
Businesses that have the need, the capability, and the willingness to adopt IFRS will be selected by the Ministry of Finance.
- Separate financial statements: Foreign-owned FDI enterprises that have the need and capability may voluntarily apply.
- Consolidated financial statements: The parent company is listed on the stock exchange, is a large-scale parent company within a state-owned economic group or is unlisted, and has loans being financed by financial institutions and other parent companies.
🗓️ Mandatory implementation period: from after 2025
Businesses will be required to adopt IFRS based on their readiness, needs, and specific circumstances.
2. How IFRS is applied in Vietnam
- Whether adopting IFRS voluntarily or mandatorily, businesses need to adhere to the principle of consistency throughout the entire financial year;
- All IFRS (Interesting Financial Reporting Standards) that are in effect under the regulations of the IASB (International Financial Reporting Standards Board) should be applied simultaneously. If there are any additions, replacements, or amendments, the Ministry of Finance should publish timely translations to ensure consistent implementation by businesses.
- Any differences between taxable income and accounting profit (if any) must be presented and explained in detail in the financial statements.
- The Ministry of Finance will issue criteria and guidelines to help evaluate the financial information of businesses to ensure comparability between businesses that apply or do not apply IFRS.
- The list of businesses that voluntarily or are required to prepare financial statements according to IFRS standards will be published by the Ministry of Finance on its electronic portal.
3. Difficulties and challenges in applying IFRS in Vietnam
📌 The capital and financial markets are not yet sufficiently developed.
IFRS utilizes the fair value principle. For this principle to be effective, the market needs to function efficiently. Only then can we obtain accurate and reliable financial data. Furthermore, IFRS aims to record financial transactions in an economy with many complex financial instruments.
Meanwhile, Vietnam's financial and capital markets are not yet fully developed due to the turbulent transitional period towards socialism, and the limited availability of financial instruments. Therefore, in the short term, the adoption of IFRS in Vietnam will face difficulties stemming from these factors.
📌 Businesses often don't want to disclose their financial situation.
Financial health is the lifeblood of any business. Therefore, many businesses tend to avoid disclosing their financial information to prevent negative impacts on their ratings, stock values, and listing eligibility. This is a major obstacle and challenge when applying IFRS financial reporting standards in Vietnam.
Indeed, if IFRS is applied, the financial situation of a business needs to be accurate and accountable, making it more reliable and reflecting the true state of the business. This would prevent poorly performing businesses from having the favorable financial reports they currently do.
📌 There is a shortage of personnel with knowledge of IFRS.
Currently, Vietnam has a limited workforce knowledgeable in IFRS, as only a few individuals who previously transitioned from VAS to IFRS and are now working at foreign companies possess prior understanding of these standards. This creates a significant challenge due to the scarcity of human resources with IFRS expertise needed to implement IFRS in Vietnam.
📌 There is still overlap in the legal regulations.
Current Vietnamese legal documents regulating the financial activities of business organizations include three documents:
- Tax policy;
- Financial mechanism;
- Financial reporting standards.
There are three different legal documents, leading to inconsistencies in application, even overlaps, and confusion about which regulations or principles to apply to transactions where there are discrepancies in how IFRS and other legal documents are handled.
4. What preparations does the business need to make?
Based on the roadmap for IFRS adoption in Vietnam, as well as the difficulties and challenges encountered, it is clear that when converting VAS to IFRS, we need to prepare:
💡For businesses
- Identify your business's target audience and IFRS adoption needs to develop a roadmap and implementation plan;
- Reorganize the accounting system, ensuring there are regulations for coordination with other departments in communicating information when implementing IFRS;
- Undertake accounting training or utilize accounting and financial services to meet the requirements for transitioning from VAS to IFRS;
- Develop an information technology system to facilitate easy connectivity between departments, parent company, and subsidiaries, enabling the provision of financial reports quickly at any time;
- Develop a specific VAS to IFRS conversion process tailored to your business, aiming for greater transparency in financial statements.
💡For employees working in the accounting and finance field
- Understanding the differences between VAS and IFRS is crucial for effective and accurate application in your business.
- Access and utilize services for converting financial statements from VAS to IFRS, as well as expert advice on the implementation roadmap.
- Clearly distinguish the concepts and differences when presenting financial statements according to IFRS and tax management regulations;
- Having an understanding of the business environment, information technology systems, and the nature of business transactions is essential when preparing and presenting financial statements.
- Develop a mindset and work style that is quick, professional, and always responsive to business requirements.
If your company requires assistance and advice regarding the application of IFRS or the preparation of IFRS-based financial statements for your group, please contact our Consulting Department immediately for prompt answers.