APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) IN VIETNAM

ABSTRACT

In the context of globalization of the world and regional economy, to ensure the provision of accurate and transparent information, the application of IFRS is one of the necessary conditions to promote the stable economic development of each country in general and contribute to the completion of synchronous solutions to promote the development of the accounting and auditing sector in particular while ensuring the recording of books according to the market operating mechanism and international practices. The article discusses the issue of applying IFRS in Vietnam. The author focused on analyzing the basic contents of IFRS such as: the concept of IFRS, its history of formation, its list of standards, and reasons for the transition to applying IFRS, at the same time, the author of the article also points out the benefits and challenges when applying IFRS for enterprises in Vietnam. On that basis, the author also boldly proposed a number of solutions to overcome these challenges in the process of applying these standards in Vietnam.

Keywords: finance, financial reporting, IFRS, business, globalization, world economy.

INTRODUCTION

The adoption of IFRS has become a global trend in the field of financial accounting. IFRS is a set of accounting standards developed by the International Accounting Standards Board (IASB) that provides a common language for financial reporting worldwide. The standards are designed to improve the transparency, comparability, and accuracy of financial reporting by providing a comprehensive set of rules that businesses can use to prepare financial statements.

In Vietnam, the application of IFRS in enterprises is still in its early stages. The application of IFRS in Vietnam faces many obstacles due to the differences between VAS and IFRS, as well as cultural differences that can affect the interpretation and application of accounting standards, which affects the quality of financial reporting information.

Therefore, within the scope of this article, the author focuses on analyzing the contents of international financial reporting standards when applied to Vietnam.

CONTENT

IFRS (International Financial Reporting Standards) is a set of accounting standards issued by the International Accounting Standards Board (IASB) [1] to set common rules for financial reporting to be consistent, transparent, and comparable around the world. IFRS defines how companies maintain and report their accounts, and identifies types of transactions and other events that have a financial impact. International Financial Reporting Standards (IFRS) were established to create a common accounting language so that businesses and their financial reports can be consistent and reliable from company to company, country to country.

The International Accounting Standards Committee (IASC) was established in June 1973 by accountancy bodies representing ten countries. It devised and published International Accounting Standards (IAS), interpretations, and a conceptual framework. These were looked to by many national accounting standard-setters in developing national standards [2].

In 2001, the International Accounting Standards Board (IASB) replaced the IASC with a remit to bring about convergence between national accounting standards through the development of global accounting standards. During its first meeting, the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards "International Financial Reporting Standards" (IFRS) [3].

In 2002, the European Union (EU) agreed that, from 1 January 2005, International Financial Reporting Standards would apply to the consolidated accounts of the EU-listed companies, bringing about the introduction of IFRS to many large entities. Other countries have since followed the lead of the EU.

In 2021, on the occasion of COP26 of the United Nations Framework Convention on Climate Change in Glasgow, the IFRS Foundation announced the formation of the new International Sustainability Standards Board ISSB [4].

IFRS Standards are required or permitted in 132 jurisdictions across the world, including major countries and territories such as Australia, Brazil, Canada, Chile, the European Union, GCC countries, Hong Kong, India, Israel, Malaysia, Pakistan, Philippines, Russia, Singapore, South Africa, South Korea, Taiwan, and Turkey [5].

To assess progress towards the goal of a single set of global accounting standards, the IFRS Foundation has developed and posted profiles about the use of IFRS Standards in individual jurisdictions. These are based on information from various sources. The starting point was the responses provided by standard-setting and other relevant bodies to a survey that the IFRS Foundation conducted. As of August 2019, profiles are completed for 166 jurisdictions, with 166 jurisdictions requiring the use of IFRS Standards [6]. Currently, IFRS includes 16 different standards. Of which, IFRS 17 is updated and replaces IFRS 4 (See table below) [7].

Table 1.

List of International Financial Reporting Standards (IFRS)

In Vietnam, the Ministry of Finance has issued Decision No. 345/QD-BTC approving the Project on applying financial reporting standards in Vietnam, aiming to apply IFRS and new Vietnamese financial reporting standards after 2025 [8].

Accordingly, the application of financial reporting standards in Vietnam (VFRS) will include the plan to announce and apply International Financial Reporting Standards (IFRS) and the plan to develop, issue, and apply Vietnamese Financial Reporting Standards (VFRS).

The roadmap for applying international financial reporting standards in Vietnam includes 3 stages [9]:

1. Preparation phase (2020-2021) - Focus on basic contents such as: Announcement of IFRS translation into Vietnamese; Developing and issuing documents guiding the application of IFRS; Developing related financial mechanisms; Training human resources and implementation processes for businesses.
2. Phase 1 (2022 – 2025) - Voluntary application. At this stage, enterprises with the need and sufficient resources are allowed to voluntarily apply IFRS to prepare consolidated financial statements. Objects include: Parent companies of large-scale state-owned economic groups with loans financed by international financial institutions; Listed companies; Large-scale public companies that are unlisted parent companies; Other parent companies with the need and sufficient resources voluntarily apply IFRS; Enterprises with 100% foreign direct investment capital that are subsidiaries of foreign parent companies with the need and sufficient resources are allowed to voluntarily apply IFRS to prepare separate financial statements.
3. Phase 2 (After 2025) - Mandatory application: For consolidated financial statements: Implement the application of VFRS for all enterprises in all fields and economic sectors operating in Vietnam, except for those applying IFRS or accounting regimes applicable to micro-enterprises. During the implementation process, the Ministry of Finance regularly reviews VFRS, updates changes to IFRS to ensure that VFRS is consistent with international practices to the highest extent; For separate financial statements: Based on the assessment of the implementation status of IFRS in phase 1, the Ministry of Finance, based on the needs and readiness of enterprises, relevant laws and the actual situation, prescribes the plan and time for mandatory application or voluntary application of IFRS to prepare separate financial statements for each group of entities, ensuring effectiveness and feasibility.

The conversion from VFRS to IFRS in Vietnam is an important factor that helps businesses in Vietnam to integrate and participate at a higher level in international financial markets, as well as attract capital from foreign investors. So, what is the specific reason for the conversion from VFRS to IFRS?

Previously, each country applied separate accounting standards, leading to many shortcomings for multinational enterprises and internationally listed enterprises. Applying different standards makes it difficult to compare financial statements, affecting the performance and ability of bussinesses to attract investment capital. Converting to IFRS helps overcome these shortcomings. IFRS is a unified international standard, enabling businesses to easily compare financial statements, and save time and costs in the accounting process. Applying IFRS also contributes to creating a transparent business environment, helping investors easily assess the potential and risks of enterprises.The separate accounting standards of each country create barriers to harmonization and comparison of financial statements. The application of different standards makes international economic cooperation more difficult. IFRS was born as an effort to unify international accounting standards, aiming at convergence in financial accounting.

The application of IFRS helps countries to harmonize and compare financial statements, creating favorable conditions for international economic cooperation and improving business performance. In short, the transition from VFRS to IFRS is inevitable to meet the needs of the modern economy, overcome shortcomings and aim at convergence in international financial accounting.

It can be affirmed that IFRS is the main common language used globally. Understanding IFRS helps businesses have useful information about other businesses in the same industry, with similar levels of operation in other countries, specifically as follows:

1. Applying IFRS standards will create conditions for businesses to be eligible to list on international markets or receive preferential loans from international financial institutions such as the World Bank, International Monetary Fund, etc.
2. Creating a legal framework for accounting for many types of financial instruments, assets and liabilities at fair value.
3. Helps enhance the comparability and transparency of financial reporting activities.
4. For enterprises with foreign direct investment (FDI) whose parent company uses IFRS, applying IFRS is a mandatory requirement to serve the consolidation of financial statements at the parent company.
5. Help increase the efficiency of capital markets and promote cross-border investments.
6. Help fair competition and create confidence for investors; increase business competitiveness.

For Vietnam, the application of IFRS has a positive impact on the quality of financial statements of enterprises, specifically: increasing transparency, comparability and accuracy of financial statements [10].

First, one of the main benefits of adopting IFRS is the transparency it brings. Increased transparency through IFRS adoption is one of the main benefits for businesses in Vietnam. Under IFRS, businesses are required to provide more detailed information about their financial position, performance and cash flows, which can help investors and other stakeholders assess the financial position of the business

more easily.

Second, IFRS adoption helps promote comparability between financial statements of enterprises, which can be useful for investors and other stakeholders who are trying to compare the financial performance of different enterprises. This is achieved through the use of common accounting principles and standards, which are used by enterprises in different countries and regions. For example, before the adoption of IFRS, enterprises used different accounting principles and standards, making it difficult for investors to compare the financial performance of different enterprises. However, after the adoption of IFRS, enterprises now use a common set of accounting principles and standards, making it easier for investors to compare the financial performance of different enterprises.

Third, IFRS requires businesses to use fair value accounting, which means that assets and liabilities are valued based on their fair market value. This results in more accurate and up-to-date valuations, which can improve the overall quality of financial statements. With the adoption of IFRS, businesses are now required to use fair value accounting, which means they must report the current market value of assets and liabilities. This results in more accurate and up-to-date financial information, which can help investors and other stakeholders make better decisions.

However, it must also be acknowledged that, in the context of economic and financial development in Vietnam, the application of IFRS may create challenges for businesses in Vietnam and may affect the quality of financial statements.

First, the financial and capital markets have not developed commensurate with their potential. IFRS aims to represent and record financial transactions in developed economies with many complex financial instruments. Meanwhile, the financial and capital markets in Vietnam have not developed commensurate with their potential, and do not have a full range of financial instruments. This leads to difficulties in applying IFRS.

Second, enterprises do not want to disclose their financial situation. When applying IFRS, financial information will be more accurate and reliable, increasing the accountability of enterprises. This makes it difficult for inefficient enterprises to have positive financial statements as they do now. Poorly performing enterprises are afraid of affecting the value of securities, ranking and maintaining the conditions for listing on the stock market.

Third, lack of human resources. Human resources trained in these accounting standards in Vietnam are still limited. Vietnam is facing a large shortage of human resources with accounting skills and expertise and applying IFRS.

Fourth, language Difference. IFRS is drafted in English, while most Vietnamese accountants, auditors, investors and businesses have limited English. Therefore, understanding the exact terminology, updating news and applying IFRS in Vietnam will also be difficult.

Fifth, overlapping legal documents. Vietnam has 3 legal documents that impact the financial activities of enterprises, including: Tax policy, financial reporting standards and financial mechanisms. This creates inconsistency and overlap in application. Therefore, applying IFRS in Vietnam will encounter many difficulties.

To help Vietnamese enterprises quickly approach and apply IFRS, the author boldly proposes some specific solutions as follows:

Firstly, building an effective and transparent legal corridor to help businesses deploy and widely apply international financial reporting standards [11]. In which, perfecting the law on tax, accounting and finance is extremely necessary in the current period.

Second, invest in training and resources for their employees to ensure they have a good understanding of IFRS. Businesses can hire IFRS experts to train their employees or send employees to IFRS training sessions or seminars. Additionally, businesses can also consider adopting software and technology that can help them apply IFRS accurately and consistently, reducing the risk of errors and inconsistencies in financial reporting.

Third, apply IFRS in a step-by-step plan, starting with the standards most relevant to the business's operations and gradually expanding to other standards over time and as the business's operations evolve.

Fourth, businesses need to work with industry associations or regulators to share best practices and resources to support industry-wide IFRS adoption.

Fifth, businesses need to increase learning from the experiences of domestic, regional and international businesses in applying IFRS.

CONCLUDE

Thus, in addition to the challenges associated with IFRS adoption, the benefits that IFRS brings are much greater, including: improving the quality, increasing transparency and comparability of financial statements. Therefore, many enterprises in Vietnam will apply IFRS in the future as they seek to improve the quality of financial statements and increase access to global capital markets. However, the process of applying IFRS will certainly be a long-term and difficult process, requiring effective solutions to accelerate the application of IFRS in Vietnam today in the context of globalization of the world economy.

References:

1. Posner, Elliot (1 October 2010). "Sequence as explanation: The international politics of accounting standards". Review of International Political Economy. 17 (4): 639–664. doi:10.1080/09692291003723748. ISSN 0969-2290. S2CID 153508571 (date of access: 07.05.2024).
2. Deloitte. "International Accounting Standards Committee (IASC)". Retrieved 29 July 2019. / [Electronic resource]. - Access mode: URL: https://www.iasplus.com/en/resources/ifrsf/history/resource25 (15.05.2024).
3. IASB. "Who we are, history". Retrieved 29 July 2019. / [Electronic resource]. - Access mode: URL: https://www.ifrs.org/about-us/who-we-are/#history (date of access: 20.05.2024).
4. IFRS Foundation. "IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of prototype disclosure requirements". Retrieved 15 November 2021/ [Electronic resource]. - Access mode: URL: https://www.ifrs.org/news-and-events/news/2021/11/ifrs-foundation-announces-issb-consolidation-with-cdsb-vrf-publication-of-prototypes/ (date of access: 17.06.2024).
5. "Use of IFRS by jurisdiction". IAS Plus. Deloitte Touche Tohmatsu Limited. Retrieved 11 June 2023. / [Electronic resource]. - Access mode: URL: https://www.iasplus.com/en/resources/ifrs-topics/use-of-ifrs (date of access: 18.06.2024).
6. IFRS Foundation (2024), Who uses IFRS Accounting Standards?. / [Electronic resource]. - Access mode: URL: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/ (date of access: 27.06.2024).
7. Bộ Tài chính (2019), Bản dịch Bộ thuật ngữ IFRS. / [Electronic resource]. - Access mode: URL: https://mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?dDocName=MOFUCM156066 (date of access: 30.06.2024).
8. Công ty CP Phần mềm Quản lý Doanh nghiệp (FAST) - (2024), IFRS là gì? Điều cần biết về Chuẩn mực báo cáo tài chính quốc tế. / [Electronic resource]. - Access mode: URL: https://fast.com.vn/chuan-muc-bao-cao-tai-chinh-quoc-te-ifrs-la-gi-nhung-dieu-can-biet/ (date of access: 01.07.2024).
9. Nguyễn Hồng Vân và các tác giả (2024), Giải pháp và lộ trình áp dụng chuẩn mực báo cáo tài chính quốc tế đối với hệ thống các tổ chức tín dụng Việt Nam // Tạp chí điện tử ngân hàng. / [Electronic resource]. - Access mode: URL: https://tapchinganhang.gov.vn/giai-phap-va-lo-trinh-ap-dung-chuan-muc-bao-cao-tai-chinh-quoc-te-doi-voi-he-thong-cac-to-chuc-tin-d.htm (date of access: 13.07.2024).
10. Tạp chí Tài chính điện tử (2024), Ảnh hưởng của việc áp dụng chuẩn mực báo cáo tài chính quốc tế đối với chất lượng báo cáo tài chính của các doanh nghiệp. / [Electronic resource]. - Access mode: URL: https://tapchitaichinh.vn/anh-huong-cua-viec-ap-dung-chuan-muc-bao-cao-tai-chinh-quoc-te-doi-voi-chat-luong-bao-cao-tai-chinh-cua-cac-doanh-nghiep.html (date of access: 25.07.2024).
11. Huỳnh Thị Thanh Trúc (2023), Nâng cao chất lượng báo cáo tài chính cho doanh nghiệp Việt Nam: Nhìn từ kinh nghiệm quốc tế // Tạp chí Kinh tế và Dự báo số 28, tháng 10/2023. / [Electronic resource]. - Access mode: URL: https://kinhtevadubao.vn/nang-cao-chat-luong-bao-cao-tai-chinh-cho-doanh-nghiep-viet-nam-nhin-tu-kinh-nghiem-quoc-te-28555.html (date of access: 05.08.2024).