Financial statements reflect, in a structured manner, the financial situation and business results of an enterprise. The purpose of financial statements is to provide information about the financial situation, business performance, and cash flows of an enterprise, meeting the needs of a wide range of users in making economic decisions. To achieve this purpose, financial statements must provide information about an enterprise regarding: Assets; Liabilities; Equity; Revenue, other income, expenses, profit and loss; and Cash flows.
This information, along with the information presented in the Notes to the Financial Statements, helps users predict future cash flows, and especially the timing and certainty of generating cash flows and cash equivalents.
The person responsible for preparing and presenting financial statements.
The Board of Directors is responsible for the internal controls necessary to ensure that the financial statements are free from material misstatements, whether due to error or fraud. They are also responsible for preventing and detecting fraud. The director (or head) of the business is responsible for preparing and presenting financial statements.
Companies' financial statements are typically audited. The audit results are reported to the shareholders or contributing members.
Requirements for preparation and presentation.
preparing Financial Statement Financial statements must present a fair and accurate picture of the company's financial position, business performance and results, and cash flows. To ensure fairness and accuracy, financial statements must be prepared and presented in compliance with applicable accounting standards, accounting regulations, and relevant provisions.
Businesses must clearly state in the notes to their financial statements that the financial statements are prepared and presented in accordance with Vietnamese accounting standards and regulations. Financial statements are considered to be prepared and presented in accordance with Vietnamese accounting standards and regulations if they comply with all provisions of each current accounting standard and regulation, as well as the Ministry of Finance's guidelines for implementing Vietnamese accounting standards.
To prepare and present fair and reasonable financial statements, businesses must:
- Selecting and implementing accounting policies that comply with regulations;
- Presenting information, including accounting policies, in a way that provides relevant, reliable, comparable, and easily understandable information;
- Provide additional information when the provisions in accounting standards are insufficient to help users understand the impact of specific transactions or events on the financial position, performance, and business results of the enterprise.
See more: What should business owners read from financial reports? 6 key indicators you shouldn't ignore.
Principles of preparation and presentation
Continuous operation
When preparing and presenting financial statements, the director (or head) of the business must assess the going concern assumption of the business. The financial statements must be prepared on the assumption that the business is a going concern and will continue to operate in its normal course in the foreseeable future, unless the business intends or is compelled to cease operations, or significantly reduce its scale of operations. In the assessment, if the director (or head) of the business becomes aware of uncertainties relating to events or conditions that may cast significant doubt on the going concern assumption, these uncertainties must be clearly stated. If the financial statements are not prepared on a going concern assumption, this fact must be clearly stated, along with the basis on which the financial statements were prepared and the reasons why the business is not considered a going concern.
Accrual basis
Businesses must prepare financial statements on an accrual basis, except for information related to cash flows. Under the accrual basis, transactions and events are recognized at the time they occur, regardless of when cash is received or disbursed, and are recorded in the accounting books and financial statements of the relevant accounting periods. Expenses are recognized in the Income Statement according to the matching principle between revenue and expenses.
Consistency
The presentation and classification of items in financial statements must be consistent from one fiscal year to the next.
Crucial and aggregate
Each material item must be presented separately in the financial statements. Non-material items do not need to be presented separately but are grouped together with items of a similar nature or function. Information is considered material if its omission or inaccurate presentation could significantly distort the financial statements, affecting the economic decisions of users of the financial statements.
Compensation
Assets and liabilities, and material income and expenses, must be reported separately. Offsetting figures in the Income Statement or Balance Sheet, except where such offsetting reflects the nature of the transaction or event, will not allow users to understand the transactions or events undertaken and to project the business's future cash flows.
Comparable
The numerical information in financial statements intended for comparison between accounting periods must be presented in proportion to the numerical information in the financial statements of the previous period. Comparative information should include verbal explanations if necessary to help users understand the financial statements of the current period.