The Ministry of Finance has clarified issues regarding accounting and disclosure in financial statements concerning certain expenses related to the direct production department that arose due to the impact of the Covid-19 pandemic.
Recently, the Ministry of Finance issued Official Letter No. 10385/BTC-QLKT dated September 10, 2021, in response to Official Letter No. 380-2021/VACPA dated August 18, 2021, from VACPA – Vietnam Association of Certified Public Accountants, regarding clarification of issues related to accounting, presentation, and explanation in financial statements concerning certain expenses related to the direct production department arising from the impact of the Covid-19 pandemic.
Letter inquiring about accounting methods
Specifically, the issues that VACPA has raised with the Ministry of Finance in Official Letter No. 380-2021/VACPA are as follows:
"Some businesses that are clients of auditing firms (applying the corporate accounting regime according to Circular No. 200/TT-BTC dated December 11, 2014) in areas implementing social distancing (such as Ho Chi Minh City, Binh Duong province, Dong Nai province...) have had to temporarily suspend production due to the detection of many F0 and F1 cases."
The temporary suspension of operations due to the impact of the Covid-19 pandemic has resulted in businesses incurring numerous related expenses. production departments such as: depreciation costs of fixed assets and other expenses. Expenses incurred during the shutdown period, including salaries and payroll deductions, Covid-19 testing costs, and costs for protective equipment and masks. Disinfectants, costs of supplies for employees to be quarantined at the factory, and costs of Covid-19 vaccination (if applicable)...
Because this is a newly arising issue, these businesses are currently facing difficulties in accounting for the aforementioned types of expenses and presenting and explaining them in financial statements in a way that complies with current accounting standards and regulations.
Guidelines for accounting for expenses incurred due to the impact of the pandemic.
Regarding the aforementioned issues concerning expense accounting, the Ministry of Finance provided the following guidance in Official Letter No. 10385/BTC-QLKT dated September 10, 2021:
- For the purpose of preparing and presenting financial statements.
Point b, Clause 1, Article 84 of Circular 200/2014/TT-BTC guiding on “Account 621 – Direct raw material and supplies costs” stipulates:
"b) Only the costs of raw materials and supplies (including both main and auxiliary materials) used directly in the production of products or provision of services during the production and business period should be recorded in account 621. The cost of raw materials and supplies must be calculated at the actual price when they are used.”
Point a, Clause 1, Article 94 of Circular 200/2014/TT-BTC guiding on “Account 811 – Other Expenses” stipulates:
“a) This account reflects expenses incurred as a result of events or transactions separate from the normal operations of the business.”
Based on the regulations mentioned above, the unit shall account for expenses related to the direct production department during the period of inactivity due to the Covid-19 pandemic in Account 811 – Other Expenses. The unit must explain this accounting in the Notes to the Unit's Financial Statements.
In addition, the determination of tax obligations regarding expenses related to the direct production department arising from the impact of the Covid-19 pandemic is carried out in accordance with tax laws.
To receive the full text of the guidance document on accounting for expenses affected by the Covid-19 pandemic, please contact us for assistance. In addition to the above, if your business has any other questions or concerns, EXPERTIS's consulting team is ready to listen and provide solutions.