| THE FINANCIAL | SOCIAL REPUBLIC OF VIETNAM Independence - Freedom - Happiness |
| Number: 1676/QD-BTC | Hanoi, date 01 month 9 year 2021 |
APPENDIX NO. 02
VIETNAMESE PUBLIC ACCOUNTING STANDARD NO. 02
CASH FLOW STATEMENT
(Attached to Decision No. 1676/QD-BTC dated September 1, 2021 of the Ministry of Finance)
INTRODUCTION
The Vietnamese public accounting standards system was researched and developed by the Public Accounting Standards Drafting Committee under the Ministry of Finance to ensure compliance with international accounting practices and suitability to the actual conditions of Vietnam. Vietnamese public accounting standards share the same standard designations as their corresponding international public accounting standards.
Vietnamese Public Sector Accounting Standard (VPSAS) No. 02 "Cash flow statement" This document is drafted based on International Public Sector Accounting Standard (IPSAS) No. 2. "Cash flow statement" and current regulations on Vietnam's financial and budgetary mechanisms. Vietnamese Public Sector Accounting Standard No. 2 stipulates provisions consistent with current Vietnamese legal regulations and provisions that may be amended or supplemented in the future. Vietnamese Public Sector Accounting Standard No. 2 does not stipulate provisions of International Public Sector Accounting Standard No. 02 that are inconsistent with the long-term financial and budgetary mechanisms; any additions will be made based on the actual situation in each appropriate period.
International Public Sector Accounting Standard 2 is the basis of the 2000 version, amended to conform with other international public sector accounting standards as of December 31, 2018, as issued by the International Public Sector Accounting Standards Board (IPSASB).
Vietnamese Public Sector Accounting Standard No. 02 uses paragraph numbering that differs from International Public Sector Accounting Standards. For comparison, a table of paragraph numbering references for Vietnamese Public Sector Accounting Standard No. 02 is included with this standard. For content relating to other public sector accounting standards, Vietnamese Public Sector Accounting Standard No. 2 cites the symbols and names of the relevant published Vietnamese public sector accounting standards. For standards not yet published, this standard only states the name of the standard or the relevant content to be referenced, without citing the numbers of the relevant standards as in International Public Sector Accounting Standard No. 31. Specific citations of the symbols and names of the standards will be made after the relevant standards are published.
At the time of the issuance of Vietnamese Public Sector Accounting Standard No. 02 (2021), the following related standards had not yet been issued:
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STT |
Name of public accounting standard |
The section contains referenced content. |
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1 |
The impact of exchange rate changes |
35 |
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2 |
Borrowing costs |
38 |
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3 |
Accounting policies, changes in accounting estimates, and errors. |
50 |
VPSAS 02 – Cash Flow Statement
The process of issuing and updating Vietnamese Public Sector Accounting Standard No. 02
(hereinafter referred to as the Standard)
Version 02 of the Vietnamese Public Sector Accounting Standard was first issued under Decision No. 1676/QD-BTC dated September 1, 2021, by the Minister of Finance.
This standard came into effect on September 1, 2021, and is applicable from September 1, 2021.
The following standards are in effect:
– Vietnamese Public Sector Accounting Standard No. 01: Presentation of Financial Statements;
– Vietnamese Public Sector Accounting Standard No. 12: Inventory;
– Vietnamese Public Sector Accounting Standard No. 12: Property, Plant and Equipment;
– Vietnamese Public Sector Accounting Standard No. 31: Intangible Assets.
VPSAS 02 – Cash Flow Statement
CONTENT
The content of Vietnamese Public Sector Accounting Standard No. 02 "Cash Flow Statement" is presented from paragraph 1 to paragraph 54. All paragraphs are equally valid.
I. GENERAL PROVISIONS
Purpose
1. The purpose of this standard is to guide the provision of information on past changes in an entity's cash and cash equivalents using a cash flow statement, in which cash flows during the period are divided into operating activities, investing activities, and financing activities. To achieve this purpose, this standard identifies: cash inflows, cash outflows during the reporting period, and cash balances at the reporting date. Information on an entity's cash flow is useful for providing users of financial statements with information for decision-making purposes. Cash flow information allows users of financial statements to assess how an entity generates cash to fund its operations and how it uses that cash. Users of financial statements need an understanding of the timing and certainty of cash flows for decision-making and to evaluate decisions regarding resource allocation and the sustainability of the entity's operations.
Limit
2. The entity must prepare a cash flow statement in accordance with the requirements of this standard and must present the cash flow statement as a separate statement from the financial statements for each reporting period.
3. Information on cash flows can be useful to users of an entity's financial statements for: evaluating the entity's cash flows; assessing compliance with financial laws and regulations, internal spending regulations (including approved budgets), and deciding whether to provide resources or engage in transactions with the entity. Generally, users of the report are interested in how the entity generates and uses cash and cash equivalents regardless of the nature of its operations. Whether the entities are administrative or non-profit organizations, they need cash for fundamentally similar reasons, although their primary revenue-generating activities differ. Entities need cash to pay for goods and services consumed, pay employees, repay debts, and cover other operating expenses. Therefore, this standard requires all entities to present a cash flow statement as a separate report from their financial statements.
The benefits of cash flow information.
4. Information on an entity's cash flow is useful for helping users of financial statements predict: the entity's future cash needs, its ability to generate cash, and its ability to finance changes in its functions, tasks, and operations. The cash flow statement also provides information for the entity to be accountable for cash inflows and outflows during the reporting period.
5. When used in conjunction with other financial statements, the cash flow statement provides information that helps users assess changes in an entity's net assets/equity, its financial structure (including liquidity and solvency), and its ability to influence the size and timing of cash flows to meet its operational needs. The cash flow statement also enhances the comparability of different entities' income statements by eliminating the influence of using different accounting methods for the same type of transaction and event (if any).
6. Information about past cash flows is often used as an indicator of the size, timing, and certainty of future cash flows. This information is also useful for checking the accuracy of previous predictions about future cash flows.
Define
7. The terms used in this standard are understood as follows:
Investment activities include the purchase, disposal, and transfer of long-term assets and other investments that are not cash equivalents.
Financial activities are those activities that bring about changes in the size and structure of the entity's equity and debt.
Regular activities are those activities that are not investment or financial activities.
Control is the act of one entity controlling another when the former has responsibility, risk, or benefit from participating in the latter, and has the ability to influence the operation, nature, or scale of the benefit derived from its control over the latter.
Cash flow refers to the inflow and outflow of cash and cash equivalents.
The reporting date is the last day of the reporting period on which the financial statements are prepared.
The funds include cash on hand and demand deposits.
Cash equivalents are short-term investments that are highly liquid, easily convertible into a specific amount of cash, and carry little risk regarding the value of the conversion to cash.
Terms defined in other Vietnamese public sector accounting standards used in this standard have the same meaning as in those standards.
Cash and cash equivalents
8. Cash equivalents are held for the purpose of meeting short-term payment needs rather than for investment or other purposes. An investment is classified as a cash equivalent when it can be easily converted into a defined amount of cash and has little risk of change in value. Therefore, an investment is usually only classified as a cash equivalent when it has a short maturity period, for example, no more than 3 months from the date of investment. Equity investments in other entities are not considered cash equivalents unless they are cash equivalents in nature.
9. Bank loans are generally classified as financing activities. Overdrafts (if any) are considered a component of cash and cash equivalents.
10. Internal transfers between an entity's cash and cash equivalents are not considered cash flows, as these are part of the entity's cash management activities and not part of its operating, investing, and financing activities. Cash management activities include investing idle cash in cash equivalents.
Economic unit
11. The term “economic entity” as used in this standard refers to a set comprising a controlling entity and all entities controlled by that entity for the purpose of preparing financial statements.
12. Other terms that may be used interchangeably to refer to economic units are “consolidated unit”, “upper-level accounting unit” and “level I budget unit”.
13. An economic unit may include both units operating for social purposes according to assigned functions and tasks, and units operating for commercial purposes. For example, a Ministry may include state administrative units that only use state budget funds and operate according to assigned functions and tasks, as well as public service units that both perform assigned tasks and provide services as prescribed by law.
Future economic benefits or potential services
14. Assets are the means by which entities carry out their functional activities and tasks. Assets used to directly generate cash inflows are generally considered “future economic benefits.” Assets used to provide goods and services consistent with the entity’s operational purposes but not directly generating cash inflows are generally considered “potential services.” To encompass all asset uses, this standard uses the term “future economic benefits or potential services” to fully describe the fundamental characteristics of an asset.
Net assets/equity
15. Net assets/equity is the term used in this standard to refer to the remaining value of assets in the statement of financial position after all liabilities have been deducted. Net assets/equity may be positive or negative. Other terms may be used interchangeably with net assets/equity, provided they are clearly meaningful (e.g., net assets).
II. SPECIFIC REGULATIONS
Present the cash flow statement.
16. The cash flow statement must present cash flows during the period, classified by current operating activities, investing activities, and financing activities.
17. The entity must present cash flows from current operations, investing activities, and financing activities in a manner most appropriate to its activities. Classification by activity provides information that helps users of the cash flow statement assess the impact of these activities on the entity's financial position, as well as its cash and cash equivalents. This information is also valuable for evaluating the relationships between these activities.
18. A single transaction may involve cash flows across multiple different activities. For example, when paying off a loan including both principal and interest, the interest payment may be classified as a recurring activity, while the principal loan amount is classified as a financing activity of the entity.
Regular activity
19. The value of net cash flows arising from regular operations is a fundamental indicator showing that the entity's operations are secured from the following sources:
(a) Tax revenue collected (directly or indirectly); or
(b) Revenue from the sale of goods or provision of services by the entity.
The value of net cash flows also reflects the entity's ability to maintain normal operations; its ability to pay debts; pay profits or distributions to owners; and make new investments without external financing.
Cash flows from operating activities on national or provincial/city-level financial statements provide information on the extent to which the Government's (or local government's) operating activities are financed from tax and fee revenues.
Information about past cash flows from recurring operations, when used in conjunction with other information, helps users of financial statements predict future cash flows from recurring operations.
20. Cash flows from recurring operations primarily arise from the entity's main cash-generating activities. Examples of major cash flows from recurring operations include:
(a) Revenue from taxes, fees and fines;
(b) Revenue from the sale of goods and provision of services by the unit;
(c) Proceeds from aid or transfer payments, funds received from the budget;
(d) Revenue from royalties, fees, commissions and other income;
(e) Funding for the operation of other public entities (excluding loans);
(f) Expenses for purchasing goods and services;
(g) Expenses for employees and payments made on behalf of employees;
(h) Collecting insurance premiums and paying insurance claims, commissions and other benefits to policyholders (for insurance companies);
(i) Payment of taxes on property tax and income tax related to regular operations;
(j) Receipts and disbursements relating to contracts held for trading purposes;
(k) Income and expenses from non-recurring activities;
(l) Income or expenses arising from the settlement of legal disputes.
Some transactions, such as the sale of real estate, machinery, and equipment, may generate profits or losses that are included in the surplus or deficit for the period. Cash flows from these transactions are considered cash flows from investing activities. However, cash spent on constructing or purchasing assets to be leased to another entity and then resold (as stipulated in Vietnamese Public Sector Accounting Standard No. 17) is also considered cash flows. "Real estate, factories and equipment"This represents cash flow from regular operating activities. Income from leasing and selling these assets also constitutes cash flow from regular operating activities.
21. Where the law permits an entity to hold securities and loans for business purposes, investments are similar to inventory, purchased for the specific purpose of resale. Therefore, cash flows arising from the buying and selling of these trading securities are considered cash flows from operating activities. Similarly, advances and loans made by public financial institutions are also generally classified as operating activities because they relate to the primary cash-generating activities of these entities.
Investment activities
22. The separate presentation of cash flows from investing activities is important because these cash flows reflect the cash flow that indicates resources expected to contribute to the entity's future operations. Only cash flows disbursed to form assets recognized on the entity's statement of financial position qualify as investing activities. Examples of major cash flows from investing activities include:
(a) Expenses for the purchase and construction of real estate, factories, equipment, intangible assets and other long-term assets. These expenses include those related to capitalized development costs and work-in-progress construction costs;
(b) Proceeds from the liquidation and sale of real estate, factories, equipment, intangible assets and other long-term assets;
(c) Expenses for acquiring equity or debt instruments from other entities and contributing capital to joint ventures (excluding expenses for acquiring instruments considered as cash equivalents or instruments held for business purposes);
(d) Proceeds from the sale of debt instruments, equity instruments of other entities and recovery of capital contributions to joint ventures (excluding proceeds from the sale of instruments considered as cash equivalents or instruments held for business purposes);
(e) Advance payments and loans to other entities (excluding advances and loans from public financial institutions);
(f) Repayment of advances and loans (excluding advances and loans of public financial institutions);
(g) Funds spent on investment activities involving capital contributions to other entities;
(h) Proceeds from investment activities involving capital contributions to other entities.
Financial activities
23. The separate presentation of cash flows from financing activities is important because it is useful in predicting the likelihood of recovering future cash flows from the entity's financiers. Examples of major cash flows from financing activities include:
(a) Proceeds from the issuance of promissory notes, loans, bonds, mortgage loans, and other short-term and long-term loans;
(b) Payments for loans;
(c) Payments made by the lessee to reduce the outstanding balance related to a finance lease.
Cash flow statement from current operations
24. The entity must report cash flow from current operations using one of the following methods:
(a) The direct method, which presents cash inflows and outflows from the entity's regular operations; or
(b) Indirect methods, in which surpluses or deficits are adjusted for the effects of non-cash transactions; any deferred or accrued recognition of past or future receipts or expenses and revenues or expenses associated with investment or financing activities.
25. Encourage entities to report on cash flows from regular operations using the direct method. The direct method provides useful information for estimating future cash flows and also information that the indirect method cannot provide. Under the direct method, information on cash inflows and outflows is primarily collected as follows:
(a) From the entity's accounting records; or
(b) By adjusting operating revenue and expenses (for public financial institutions, interest or similar revenue, interest and similar expenses) and other items on the income statement for:
(i) Changes in inventory, accounts receivable and accounts payable during the period;
(ii) Non-monetary items;
(iii) Other items affecting cash flow from investing or financing activities.
26. Entities reporting cash flows from operating activities using the direct method are also encouraged to provide a reconciliation statement between the surplus/deficit from operating activities and the net cash flow from operating activities. This reconciliation statement may be part of the cash flow statement or presented in the notes to the financial statements.
27. By the indirect method, net cash flow from regular operations is determined by taking the surplus or deficit during the adjustment period and allocating it to:
(a) Changes in inventory, accounts receivable and accounts payable during the period;
(b) Non-cash items such as depreciation, provisions, deferred taxes payable, unrealized gains and losses from exchange rate differences, undistributed surpluses from associates and non-controlling interests; and
(c) All other items (that affect cash flow) that are part of cash flow from investing or financing activities.
Cash flow statement from investing and financing activities
28. The entity must separately present the key indicators of total inflows and total outflows arising from investment and financing activities, excluding cash flows reported on a net basis as referred to in paragraphs 29 and 32 of this standard.
Cash flow statement on a net basis
29. The entity may report on a net basis the following cash flows arising from operating activities, investing activities, or financing activities:
(a) Collecting and only collecting payments from parties involved in transactions, taxpayers, or other beneficiaries. In these cases, the cash flows reflect the activities of other parties that are not the activities of the entity;
(b) Receiving and disbursing cash for fast-turnover, large-amount, short-term transactions.
30. Paragraph 29(a) refers only to transactions where the entity controls the cash balance, for example, the following receipts and disbursements:
(a) Tax revenue collected on behalf of others shall not be retained for use under the revenue regulation mechanism between levels;
(b) Collecting and repaying time deposits of a public financial institution;
(c) Capital held by an investment fund or trust fund for a client;
(d) Collect and return rent to the owner of the leased property.
31. Examples of cash receipts and disbursements referred to in paragraph 29(b) include payments relating to:
(a) Buying and selling investments;
(b) Other short-term loans, for example, loans with a maturity period of no more than 3 months.
32. Cash flows arising from the following activities of a public financial institution may be reported on a net basis:
(a) Receipts and payments of fixed-term deposits;
(b) Deposits into and withdrawals from other financial institutions;
(c) Advances, loans and repayments, and loan collection from customers and other trading partners.
Cash flow in foreign currency
33. Cash flows arising from foreign currency transactions are recorded in Vietnamese Dong by applying the exchange rate between the Vietnamese Dong and the foreign currency on the date the cash flow occurs.
34. Cash flows of entities subject to overseas control must be converted using the exchange rate between the Vietnamese Dong and the foreign currency on the date the cash flow occurs.
35. Cash flows in foreign currency must be reported in a manner consistent with Vietnamese public accounting standards regarding the effects of exchange rate changes.
36. Unrealized gains/losses due to exchange rate changes are not cash flows. However, the impact of exchange rate changes on cash and cash equivalents denominated in foreign currency held or maturing must be presented in the cash flow statement to reconcile the beginning and ending balances of cash and cash equivalents. This item is presented separately from cash flows from the entity's operating, investing, and financing activities. This item includes any differences arising (if any) from those cash flows being reported at the exchange rate at the end of the period.
Interest and dividends or similar payments
37. Cash flows related to interest and interest or similar payments received and paid by the entity must be presented separately. Each of these items is consistently classified as a recurring activity, investing activity, or financing activity across reporting periods.
38. The total interest paid during the period must be presented in the cash flow statement regardless of whether it is recognized as an expense during the period in the income statement or has been capitalized in accordance with the Vietnamese Public Sector Accounting Standard on Borrowing Costs.
39. For public financial institutions, interest paid, interest and dividends or similar amounts received are generally classified as cash flows from operating activities. However, there is no consensus on how these cash flows are classified for other entities. An entity may classify interest paid, interest and dividends or similar amounts received as cash flows from operating activities because they contribute to determining a surplus or deficit for the period. Alternatively, interest paid, interest and dividends or similar amounts received may also be classified as cash flows from financing or investing activities because they represent the cost of raising financial resources or income from investments.
40. Dividends or similar payments may be classified as cash flows from financing activities because they represent the cost of financing. Alternatively, dividends or similar payments may also be classified as cash flows from operating activities to help users of the report assess the entity's ability to pay these amounts from its operating cash flow.
Corporate income tax
41. Cash flows arising from corporate income tax must be presented separately and classified as part of the entity's regular operations, unless there is a clear basis for classifying them as financing or investing activities.
42. Some activities of public sector entities are also subject to corresponding tax obligations as other entities in the production and business sectors. For example, some production and business activities of public non-profit organizations are subject to corporate income tax.
43. Corporate income tax arising from transactions that increase cash flows is classified as regular operating activities, investment activities, and financing activities on the cash flow statement. While tax expense can be easily distinguished from investment or financing activities, it is not easy to identify the cash flows associated with that tax, which may arise in periods different from the period in which the transaction's cash flow occurs. Therefore, tax paid is often classified as cash flow from regular operating activities. However, when it is possible to identify the tax cash flow of a particular transaction that generates cash flows classified as investment or financing activities, that tax cash flow must also be appropriately classified as investment or financing activities. When tax cash flows are allocated to multiple activities, the entity must present the total amount of tax paid.
Investing in controlled entities, joint ventures, and affiliated companies.
44. For investors as defined by law, when accounting for investments in a joint venture, associate, or controlled entity using the equity method or the cost method, the investor is limited to presenting on the cash flow statement only cash flows between the entity and the investee, for example, dividends or dividend-like payments or advances.
45. For reporting benefits in joint ventures and associates using the equity method, the entity shall present on the cash flow statement cash flows related to investments in joint ventures and associates, as well as cash flows related to distributions and other receipts and payments between the entity and the joint venture or associate.
Non-cash transactions
46. Investment and financing transactions that do not directly involve cash or cash equivalents are not presented in the cash flow statement. The entity must present these transactions in its financial statements to ensure that it provides appropriate information to users of the report regarding such investment and financing activities.
47. Many investment and financing activities, while affecting the entity's capital structure and assets, do not directly impact current cash flows. Excluding non-cash transactions from the cash flow statement is consistent with the statement's objectives because these items are not related to the cash flows of the current reporting period. Examples of non-cash transactions:
(a) Exchanging assets for another asset, or purchasing assets by assuming direct debt, or through a financial lease;
(b) Convert debt into equity.
Components of money and money equivalents
48. The entity must present the components of cash and cash equivalents on the cash flow statement and must reconcile the figures on the cash flow statement with the equivalent items on the statement of financial position.
49. Due to the diverse methods of money management and banking transaction mechanisms, in order to comply with Vietnamese Public Sector Accounting Standard No. 01. "Presenting financial statements"The entity must provide information on the accounting policies applied to determine the detailed indicators of its cash and cash equivalents.
50. The impact of any changes in the policies applied to determine the detailed indicators of cash and cash equivalents must be reported in accordance with the Vietnamese Public Sector Accounting Standards on accounting policies, changes in accounting estimates and errors.
Other explanations
51. The entity must provide an explanation, along with an explanation from the entity's leadership, in the Notes to the Financial Statements regarding the value of large amounts of cash and cash equivalents held by the entity but not used by the economic entity.
52. In many cases, an entity holds a sum of cash and cash equivalents but the economic entity is not permitted to use this money. For example, cash and cash equivalents held by an entity subject to strict foreign exchange controls or where laws restrict the controlling entity or other controlled entities within the economic entity from using the money in the usual way.
53. Other supplementary information may help readers better understand the entity's financial position and solvency. Information that is encouraged to be presented along with the explanations in the notes to the financial statements may include:
(a) The value of undisbursed loans that the entity may use for its future regular operations and to settle capital commitments, and specifying any limitations on the use of such loans;
(b) The quantity and nature of the funds subject to restrictions on use.
54. The cash flow statement can help users understand the relationship between an entity's activities or programs and budget information. (Vietnamese Public Sector Accounting Standard No. 01) "Presenting financial statements" This refers to a comparison between actual figures and estimates.
Reference table of paragraphs of Vietnamese public sector accounting standards compared with paragraphs of international public sector accounting standards.
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