impact of globalization on international accouting harmonization a case of vietnam

2.1 The importance of accounting harmonization 8 2.1.1 The need for accounting harmonization 8 2.1.2 Distinguish between accounting harmonization and accounting standardization 9 2.4 Dis

IMPACT OF GLOBALIZATION ON INTERNATIONAL ACCOUTING

HARMONIZATION: A CASE OF VIETNAM

BY NGUYEN THI PHUONG THAO

Graduation Project Submitted to the Department of Business Studies Help University College, in Partial Fulfillment of Requirements for The Degree of Bachelor of Business (Accounting) Hons

JUNE 2010

ACKNOWLEDGEMENT

First and foremost, my sincere gratitude is dedicated to my supervisor – Dr Le Van Lien Thanks for your strong support, guidance, intuitive comments, and also motivation through the process of completing this thesis

In addition, I would like to send my gratitude to the International School and HELP University College for giving me an opportunity to conduct my study in my favorite area

Furthermore, I also address my appreciation to Mr Nguyen Xuan Thuy (Vice chief Executive of Bao Viet finance- insurance Groups) and Ms Ho Thi Thu Phuong (Academic Administrator of British University Vietnam) who supported my thesis with enormous information in data collection process My thankfulness is also addressed to others who have helped me since the beginning of my study until I can finish my thesis

Finally, thanks you to all my family and friends, for your support, help, and motivation and made it possible for me to complete this study

Hanoi, June 2010

Nguyen Thi Phuong Thao

IMPACT OF GLOBALIZATION ON INTERNATIONAL ACCOUTING

HARMONIZATION: A CASE OF VIETNAM

BY NGUYEN THI PHUONG THAO

types and sizes of companies) in accordance with accounting harmonization This is because once we understand and evaluate the actual picture of accounting harmonization process in Vietnam, we can learn from the experience This is helpful for future research or strategic plans From the results obtained through questionnaires, the term of accounting harmonization is not new in Vietnam, and Vietnam is completing its harmonization process step by step However, awareness

of Vietnamese about this term is different from each other, and the differences between actual applications in some companies Thus, several recommendations and scopes for future research might be developed by the researcher However, because

of limitation, this study only covers some typical items of this topic

2.1 The importance of accounting harmonization 8 2.1.1 The need for accounting harmonization 8 2.1.2 Distinguish between accounting harmonization and accounting

standardization

9

2.4 Disadvantages of accounting harmonization 13 2.5 Different levels of accounting harmonization 14 2.5.1 International level of accounting harmonization 14

2.5.2 Regional level of accounting harmonization 15 2.5.3 National level of accounting harmonization 17 2.5.3.1 Some countries in ASEAN 17

CHAPTER 4 ANALYSIS OF DATA

4.1 Vietnamese accounting standards (VAS) responding 37

4.1.2 The actors 38 4.1.3 Evaluation the role of MOF in process of establishment VAS 38

4.2 Comparison between some typical VAS and IAS 41

4.3.1 Classification of the respondents of different job levels 43 4.3.2 Classification of the Respondents from Types of Companies 44

5.2 Awareness of Vietnamese accountants relating to accounting

LIST OF TABLES

Table 4-1 Four VAS issued and promulgated in 2001 and relating IAS 39 Table 4-2 Six VAS issued and promulgated in 2002 and relating IAS 39 Table 4-3 Six VAS issued and promulgated in 2003 and relating IAS 40 Table 4-4 Six VAS issued and promulgated in 2004 and relating IAS 40 Table 4-5 Four VAS issued and promulgated in 2005 and relating IAS 40 Table 4-6 Comparison between VAS 02 and IAS 02 41 Table 4-7 Comparison between VAS 24 and IAS 07 42 Table 4-8 Comparison between VAS 25 and IAS 27 43 Table 4-9 Classification of the respondents of Different job level 44 Table 4-10 Classification of the Respondents from Types of Companies 44 Table 4-11 Hear the term of “accounting harmonization” 46 Table 4-12 Perception of the training program for accountant to

improve their knowledge relating to international accounting

Table 4-15 Accounting harmonization can reduce the gap amongst

different accounting systems in each country

51

Table 4-16 Accounting harmonization can take easy ability to adapt

than accounting standardization

Table 4-19 Preparation cash flow statement per annual 56 Table 4-20 Having financial statements translated into English 57 Table 4-21 Duration companies have applied VAS in preparation

financial statements

58

Table 4-22 Preparation financial statements 59 Table 4-23 Application of VAS in accounting system 60 Table 4-24 Recruitment employees can prepare and understand the

financial statements in English

62

Table 4-25 Translating financial statements into English 63

LIST OF ABBREVIATIONS

Abbreviation Full Name

AFA ASEAN Federation of Accountants

ASC Accounting Standards Council

ASEAN Association of South East Asian nations

ASPC Auditing Standards and Practices Council

BOA Board of Accountancy

EFRAG European Financial Reporting Advisory Group

FEE Federation des Experts Comptables Europeens

IAI Indonesian Institute of Accountants

IAS International Accounting Standards

IASB International Accounting Standards Board

ICAAT Institute of Certified Accountants and Auditors of Thailand ICAEW Institute of Charted Accountants of England and Wales ICPAS Institute of Certified Public Accountants of Singapore IFAC International Federation of Accountants

IFRS International Financial Reporting Standard

ISAR International Standard of Accounting and Reporting MOF Ministry of Finance

OECD Organization for Economic Co-operation and Development PICPA Philippine Institute of Certified Public Accountants

VAS Vietnam accounting standards

WTO World Trade Organization

CHAPTER 1 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In recent time, we often hear the term of “globalization” This concept is becoming the new trend all over the world What is globalization? Generally, globalization is the worldwide integration of some typical aspects (economy, technology, politic, culture, and society) across countries to improve the collaboration amongst various countries, and help each other on development (Sara Hamilton, 2009) In other words, globalization leads to the in-depth influence on various aspects of modern society Often, when we call the term of “globalization”, we often imply the

economic globalization As we known, accounting is the basic tool, as well as the basic language to improve economic developments Therefore, globalization raise the big question: What is the most difficulty amongst typical accounting systems across countries? Under the effect of globalization, accounting harmonization becomes a big issue in worldwide picture That’s why, accounting harmonization considered as the main topic on current and heated discussion (Keegan, 1988)

Perception on accounting harmonization in rests of the world changes significantly since more and more countries set up their accounting standards Those standards provide guidelines about application accounting system respond to international accounting standards issued by the International Accounting Standards Board

(IASB) For examples: according to Jeffrey (1999) one of the top priorities of

Instituto Mexicao de Contadores Publicos (IMCP) of Mexico is to make

harmonization with International Accounting Standards (IAS); some other countries such as Australia and countries in the European Union also have elected to adopt the

accounting standards issued by the IASB (Craig Deegan, 2009) In South East Asia, some similar situations relating to making accounting harmonization are also

concerned The Association of South East Asian nations (ASEAN) play the

important role to improve the economy amongst the countries of South East Asia This organization makes significant efforts for accounting harmonization through ASEAN countries This purpose is expressed through Federation of Accountants (AFA) ASEAN tries to provide the guidelines and techniques to its members’ professional accounting bodies about application of IAS effectively As compared to other countries, Vietnam takes significant steps to respond the impact of

globalization on accounting harmonization Through this study, the researcher

attempts to provide the detailed information relating to accounting harmonization in global economy and how Vietnam to respond this issue

1.2 RESEARCH OBJECTIVES

This study is developed to explore the impact of how Vietnam response to

accounting harmonization in global economy Accordingly, there are several

objectives discussed in this study:

First of all, the main objective is to provide all necessary information relating to the accounting harmonization The question: “Why do we need to make accounting harmonization in global economy?” will be discussed According to this study, the researcher provides the general introduction of IASB and the role of IASB in making accounting harmonization process of issuance IAS Some advantages and

disadvantages of various countries of application IAS in international accounting

environment are also mentioned In order to help readers understand about the topic, accounting harmonization will be divided in to three levels including international level, regional level, and national level (gupea.ub.gu.se) The first level (international level) will support for the overview of accounting harmonization from the world’s perspective The next level (regional level) will provide some detailed information relating to methods that typical regions response to accounting harmonization At the last level (national level), we discuss some significant efforts of each country to reach the accounting harmonization.

The second objective is to clarify impact of “reform process” in 1986 on accounting environment in Vietnam That year is considered as the important point of economic development in Vietnam Vietnam carried out a reform process of changing its centrally planned economy to a socialist market-oriented economy, liberalizing the domestic economy and integrating with outside the world (dissertations.ub.rug.nl) The “reform process” also encourages the initial step to establish Vietnamese

Accounting Standards (VAS) in accordance with accounting harmonization In addition, VAS and process of issuance of VAS are discussed Moreover, the

researcher tries to compare some typical IAS and VAS

The third objective is obtained from the view of accountants in finance and

accounting department of some companies in Vietnam The researcher tried to design ten questions to explore their awareness about international accounting, and making Vietnam accounting policy harmonization with international accounting

Furthermore, by conducting the research, the researcher intends to discuss more factors causing impacts on application international accounting in Vietnam in

practice rather than collecting from the available sources Some research hypotheses are also will be developed and tested through the process of conducting research using chi-square test The researcher tries to provide the completed view about the application international accounting in Vietnam through Vietnamese accountants’ awareness, and response of some companies in Vietnam to accounting

Moreover, discussion about accounting harmonization has the special meaning for Vietnam, since Vietnam joined World Trade Organization (WTO) on 11 January 2007(wto.org) By joining WTO, Vietnam went to the large ocean; Vietnam accepted the competitive environment and expanding economic activities outside country Thus, accounting policy in Vietnam needs to be approached with international

accounting near by near (news.bbc.co.uk)

Within this study, the researcher provides more about understanding the issues of Vietnam toward international accounting through some questions as follows:

 Does Vietnam change accounting policy toward international accounting?

 Does Vietnam have some significant efforts to make accounting

harmonization in global economy?

 Is it benefit for Vietnam to reach accounting harmonization?

 Does Vietnam set up Vietnam accounting standards in harmonization (VAS) with IAS/IFRS?

 What is the process to make accounting harmonization taking place in

Vietnam?

 Does Vietnam need more necessary conditions in harmonization process?

Answering these questions above will help to expand understanding of current accounting policy in Vietnam and its efforts to pursuit accounting harmonization

1.4 LIMITATION OF THE STUDY

This study is limited to discussion on some specific of relating accounting area such as: accounting standards, financial reports, inventories, cash flows and so on It is hard to cover all items of the issue here because it includes a broad range

Furthermore, the limitations of time also make the researcher not to conduct this study on all aspects relating to issue Therefore, the researcher needs to select some specific item to clarify and discuss to help the reader understand in the effective way about all the necessary information relating to the topic in general

1.5 ORGANIZATION OF THE RESEARCH

This study will be organized into five chapters This is because the readers can understand this paper on the logical way Five chapters referred here as: introduction, literature review, research methodology, analysis, and conclusion

Chapter 1, with the title “Introduction” will mention the general picture about the relating topic

Chapter 2, with the title “Literature review” will provide all necessary information relating to accounting harmonization Some key factors of accounting harmonization are the importance of accounting harmonization, the role of IASB, advantages and disadvantages of accounting harmonization, and different levels of accounting

CHAPTER 2 LITERATURE REVIEW

This chapter is developed to provide framework relating to accounting

harmonization The aim of this chapter is to help the readers understand various aspects around this term of international accounting harmonization Accordingly, the readers can develop their background relating to this topic

2.1 THE IMPORTANCE OF ACCOUNTING HARMONIZATION

Belongs to this section, we approach the justifications of accounting harmonization

In order to help the readers obtain this topic in the effective way, this section will be divided into two subsections The purpose of doing that is to explain of the need for accounting harmonization Moreover, the readers can distinguish between accounting harmonization and accounting standardization clearly

2.1.1 The need for accounting harmonization

The global economy developing rapidly leads to significant effects on accounting environment One of those effects is the barrier amongst different accounting rules in each country when integrating global activities This is because accounting is

considered as the language of business (Ph Diaconu PAUL) Obviously, if different countries flow the same accounting rules, the gap between accounting system in each country will disappear (Craig Deegan, 2009) This issue leads to the global efforts for establishment a set of accounting standards applied by different countries

Accordingly, international accounting standards will open new horizon of evolution

(Anderson, 1993) Those standards will help the different financial information between various companies become more relevant in the purpose of comparative analyses or comparisons

2.1.2 Distinguish between accounting harmonization and accounting

standardization

In recent years, people always talk about international accounting However, most of them still confuse between accounting standardization and accounting

harmonization Before understanding relating aspects of international accounting

harmonization, the readers need to know the basic feature of each concept

The first concept known as accounting standardization referred to a more rigid and narrow set of rules (Nobes and Parker, 2004) The implication under this term is different countries need to follow the unique set of accounting rules, fundamental principles, accounting standards without amendment and making adoption with regulations in each country The main advantage of using accounting standardization

is to use the consistent accounting systems amongst different countries, save time and transfer cost However, this also causes the main challenge for countries with

lower infrastructure of accounting policy than others

The second concept is known as accounting harmonization This concept includes the similar characteristic with accounting standardization However, accounting harmonization is more flexible in which allows every country to establish its

accounting standards to meet its regulation based on international accounting

standards As far as concern, accounting harmonization has to develop from the base

of accounting standardization (Weber, Cameron M., 1992) because we need the framework of accounting standards first, and then different countries make

amendment for harmonization with international accounting standards Based on this fundamental advantage mentioned above, accounting harmonization is preferred by most countries The actor of issuance of international accounting standards, the advantages and disadvantages of this concept, as well as the different level of

accounting harmonization will be discussed later

2.2 THE ACTOR OF ISSUANCE IAS

International Accounting Standards Board (IASB) is considered as the independent setting body of the International Accounting Standards (IAS) (iasb.org) The history

of IASB and the idea for accounting harmonization started from fifty years ago by Henry Benson (Veron, 2007) Henry Benson was a former president of the Institute

of Charted Accountants of England and Wales (ICAEW) He wanted to see Canadian Institute of Charted Accountants and the American Institute of Certified Public Accountants approach to more intimate basis He also repeated his implication in his autobiography under the title Accounting for Life in 1989 (Craig Deegan, 2009) More detailed, he identified about his ambition of making the dialogue between three countries (United Kingdom, American, and Canada) to make them closer together because these countries had the significant on accountancy at that time Craig

Deegan mentioned more that three those bodies had established the International Accounting Standards Committee (IASC) in 1973 and then created IASC

Foundation The IASC foundation includes twenty-two trustees in which six are

appointed from North America, six from Europe, six from the Asia/Ocean region, and four from any area (www.federalreserve.gov) International Accounting

Standards Board was developed in 2001 (en.wikipedia.org) There are fourteen members of IASB, and any IAS need to be approved by at least a two-thirds majority

of members (Craig Deegan, 2009) IASB known as an independent standard setting body housed in London (Jacob, RA., & Madu, C.N., 2009) From 1973 to 2000, IAS were issued by the IASC, and also amended by IASB (www.iasplus.com) Some of IASs has replaced with the new International Financial Reporting Standard (IFRS) Until now, more than 100 countries have applied the accounting standards belongs to IASB, event though each country need to conduct significant change in domestic accounting system responding to international accounting standards

2.3 ADVANTAGES OF ACCOUNTING HARMONIZATION

Accounting harmonization causes different advantages in global economy However, under the limitation of this study, the researcher tries to discuss some main

advantages around this concept Accordingly, the readers can evaluate the usefulness

of accounting harmonization in the basic term

According to Securities and Exchange Commission (SEC) in 2008, one of major benefits of application IAS or IFRS is to increase comparability of financial

statements Such comparability can reduce the misunderstanding of foreign financial statements; hence this helps the companies save time and money (Ph Diaconu PAUL) Besides that, accounting harmonization serves the purpose of raising the

higher possible level In addition, accounting harmonization is suitable with each local economic, legal, and social condition (Choi, Frost and Meek, 1999)

Another advantage of accounting harmonization discussed here is an increase in foreign mutual fund ownership among firms applied IAS (Covrig et al., 2007) In other words, Samuels and Piper (1985) had the similar ideas They also considered that companies using IAS attracted more foreign investors (financial analyst and foreign lenders) because investors could understand the financial statements Once they approached financial statements clearly, they compared the outcomes of each investment opportunity and then made investment decisions They often prefer companies applied IAS for easy understanding their financial statements

The last advantage of accounting harmonization discussed is to make higher

accounting quality According to the examination of Barth et al, (2007), accounting amounts come from the companies applied IAS are higher accounting quality than others The reason is application international accounting standard allows users to conduct the competitive and effective analyses needed to run business easier, as well

as help the financial executives manage strong relationship with customers, outside suppliers, and other stakeholders (O'Malley, 1993) Of course, we can see the group

of multinational companies gain the highest benefit based on this feature

2.4 DISADVANTAGES OF ACCOUNTING HARMONIZATION

Analyses some of main disadvantages of accounting harmonization are necessary to evaluate and complete the usefulness of this basic tool The most fundamental of challenges relating to harmonization are: different accounting practices in different countries, lack of strong professional accountancy bodies in each country (especially

in some countries where accounting system is not consistent), different in political and economic system (Nobes & Parker 2002)

In addition, the main users of accounting information come from different countries causing obstacles for harmonization (Ira Yuta Chairas & Wirawan E.D Radianto, 2001) For example the nature market in UK and US are the capitals markets, thus the main users belong to these countries are the investors In contrast, Germany and other continental countries, the basic nature is not similar with the nature in UK and US; hence the main users are tax authorities and government Each type of users requires different accounting information for relevant decision making Therefore, the big issue for accounting harmonization is how to satisfy all requirements of different users across countries

The next disadvantage comes from the different legal situation amongst various countries Accounting system is directly affected by legislation (Lawrence, 1996) Accounting harmonization is difficult to suitable with all nations Thus, each country need to establish each accounting standards follow its regulation and legislation based on international accounting standards Accordingly, the process of accounting harmonization takes time for preparation and application The dynamic business environment leads to the competition between countries to attract investors rapidly,

whereas process of accounting harmonization takes time The business have to minimize short time to focus, this will leads higher costs of harmonization

2.5 DIFFERENT LEVELS OF ACCOUNTING HARMONIZATION

Most of professional accountancies recognize the benefits of accounting

harmonization More than one concept of accounting harmonization, this term will be discussed through three levels such as: international level, regional level, and

national level

2.5.1 International level of accounting harmonization

As mentioned earlier, since 1970s, the idea of establishment IAS relating to

accounting harmonization was appeared and developed The main setting body of IAS is IAB In addition, there are other several institutions joining in establishments IAS might be listed here as: The Intergovernmental Working Group of Experts on International Standard of Accounting and Reporting (ISAR) (en.wikipedia.org), Organization for Economic Co-operation and Development (OEC) (www.oecd.org), International Federation of Accountants (IFAC) (www.ifac.org)

The Intergovernmental Working Group of Experts on ISAR was established by the

UN Economic and Social Council in 1982 (www.nationsencyclopedia.com)

According to Lawrence (1996), this body made contribution on developing countries

to improve their accounting systems by enhancement accounting and financial

reporting Then, IASB obtained information from ISAR as a consultative body in the way to pursuing international accounting harmonization (Joshi, 1998)

Established in 1961, OECD now includes members’ 30 countries (www.biac.org) The purpose of OECD is to promote the world trade and global activities (Angel, Gurria – OECD secretary-general, 2010) OECD established a Committee on

International Investment and MNEs This working group conducted some necessary research studies to assist IASB for the purpose of accounting harmonization

(Lawrence, 1996)

IFAC was established in 1977 (Christopher Humphrey, and Anne Loft, 2007) This institution represents for 63 accountancy bodies of 51 countries The main concern of IFAC is to concentrate on globalization of accounting professions relating to

accounting ethics, management accounting, and so on Accordingly, IFAC make some significant efforts to harmonization accounting process between its members in align with international accounting Therefore, this process gains advantageous points in global economics

2.5.2 Regional level of accounting harmonization

International accounting is very different from each religion to each religion In other words, each typical religion causes influences on accounting practices (Hamid, Craig and Clarke, 1993) There are two main religions having the significant impacts on accounting harmonization referred as: European region, and ASEAN region

The European Union (EU) (europa.eu) was created in 1950 by a number of treaties as: Treaty of Paris in 1951 (www.unizar.es), Treaty of Rome in 1957

(www.historiasiglo20.org), and Euratom Treaty in 1957 (www.cnduk.org) Starting

from the ideas for freedom of market, The EU founders desired to create a closer a single market context responding to accounting harmonization in Europe (Mueller, 1997) Among several Directives of EU, two most important Directives are: the fourth directive and the seventh directive (Ira Yuta Chairas & Wirawan E.D

Radianto, 2001) The main content of the Fourth Directive is to deal with all accounts of single companies and other aspects of annual accounts (Fourth Council Directive of 25 July 1978 - 78/660/EEC) The seventh Directive deals with all the accounting system in consolidation (Seventh Council Directive of 13 June 1983 - 83/349/EEC) Some organizations of EU joining accounting

harmonization process amongst different companies in EU involved as:

European Financial Reporting Advisory Group (EFRAG), Federation des Experts Comptables Europeens (FEE) The important contributions of EFRAG relating to efforts of making accounting harmonization is attention into IASB

Working Group meetings as observers, regularly meetings with IASB’s chairman, participation in the World Standard Setters meetings organized by the IASB

(www.efrag.org) One of the most fundamental objectives of FEE is to enhance the European Accountancy profession response to the international level of accounting (www.fee.be)

The second region mentioned in this section is ASEAN region ASEAN was

established on 8 August 1967 in Bangkok, Thailand (www.aseansec.org) The aim of ASEAN is to improve economic activities in ASEAN community, and joining global activities more effectively and efficiently ASEAN Federation of Accountants

(AFA) was established in 1977 This is considered as the umbrella

organization including all the member countries’ national associations of

accounting bodies (Ira Yuta Chairas & Wirawan E.D Radianto, 2001) Since establishment, the AFA played the typical role in accounting harmonization in the ASEAN since achievement accounting harmonization is one of the fundamental for existence of AFA (Prem Yapa, 2004; Choi, 1979) Through AFA, ASEAN tried to create the regional consistent accounting system based on the international

accounting, simultaneously, making appropriate changes with distinguished

regulation in each ASEAN’s member Besides some efforts in pursuing accounting harmonization, ASEAN dealt with some challenges Not all members in ASEAN have sufficient infrastructure accounting regulations and accounting institutions that adopt with international accounting in a short time In addition, each country in ASEAN region is different from its awareness of the importance and the benefit of accounting harmonization The method of application accounting harmonization selected in practice by ASEAN’s members is not similar, and this will cause some obstacles (Prem Yapa, 2004)

2.5.3 National level of accounting harmonization

2.5.3.1 Some countries in ASEAN

Obviously, each country is different from its actions response to accounting

harmonization The reason is distinguished features in each country including its regulation, its culture, its historical background, and so on For example, when one typical country tries to pursue accounting harmonization, its main accountancy body needs to select the most appropriate method of application IAS or establishment its own accounting standards based on its policy and its accounting system Under this section, the researcher just summarizes some typical ASEAN countries

We will discuss about the case of Indonesia first Since 1957, the Indonesian Institute

of Accountants (IAI) is considered as the only organization for professional

accountants in Indonesia (www.acga-asia.org) IAI is a member of IFAC, IASB, and AFA (Ira Yuta Chairas & Wirawan E.D Radianto, 2001) In the Philippines, the major institutions involved in the process of accounting harmonization are the Board

of Accountancy (BOA), the Philippine Institute of Certified Public Accountants (PICPA), Accounting Standards Council (ASC), and Auditing Standards and

Practices Council (ASPC) (Ira Yuta Chairas & Wirawan E.D Radianto, 2001) The Institute of Certified Public Accountants of Singapore (ICPAS) is the national

organization of the accounting profession in Singapore (www.accountants.org.sg) This institution shows the connections with regional and international professional organizations (ASEAN Federation of Accountants, the Asia-Oceania Tax

Consultants' Association, and the International Federation of Accountants) Institute

of Certified Accountants and Auditors of Thailand (ICAAT) is the unique institution for accounting profession in Thailand (www.iasplus.com) Each country mentioned above took the necessary steps to establish its own accounting standards based on international accounting standards with the assist of its main accounting professional bodies This study is developed to make the research relating to impact of accounting harmonization on Vietnam, and how this country response to this concept Therefore, the detailed information about Vietnam will be discussed later

2.5.3.2 Vietnam

In 1986, Vietnam has carried out a reform process all over aspects To cope with such a situation, the Vietnamese Communist Party decided to call economic is the

central feature (Sixth Vietnamese Communist Party, 1986) The purpose of this reform process is to changing centrally planned economy to a socialist market-oriented economy (Le Khuong Ninh, 2003) This process will encourage Vietnam joining more integrating activities with outside the world Accordingly, this process helps Vietnam get liberating with the domestic economy, accordingly improvement Vietnam economic Since the reform process was carried out in Vietnam, a new economic system has been gradually established and developed including main characteristics: creating a multi-ownership economy, expanding enterprise

autonomy, opening and developing joint-venture business with foreign partners All

of them lead to changes in accounting environment in Vietnam In order to reduce the gap and difficulties between different accounting system in global economy, Vietnam needs to response to accounting harmonization

The accounting applied in Vietnam (1975 – 1989) was based on the accounting policy issued by the Ministry of Finance in 1970 (The Decision No.425 TC/CDKT, 1970) After the economic reform process carried out over 3 years, the Ministry of Finance issued the new accounting policy in 1989 and suspended the accounting policy issued in 1970 (The decision No.212 TC/CDKT, 1989)

The reform processes of Vietnam in 1986 defined the initial steps to change its accounting environment The accounting system took the first step to establish in establishment of one consistent system applied in the whole country, and approached

to international accounting step by step The Ministry of Finance had been aware of the vitality of such accounting standards This institution responded to the economy call by development a set of Vietnamese accounting standards based on international

accounting standards With supports from the European Union through the TAPVIET technical assistance program, since the early 90s, Vietnam prepared for a legal framework for the accountancy profession, including the Vietnamese

EURO-Accounting Standards (Pro Dr Tran Van Ta, 2001)

CHAPTER 3

RESEARCH METHODOLOGY

This chapter describes the approach of how collection data for the purpose of

meeting objective of the study (Ranjit Kumar, 2005) This part of the research is important because the research methodology help the researcher obtain the desired objectives The methods and strategies used will be mentioned in this chapter, as well

as some difficulties are expressed when conduction research

3.1 RESEARCH OBJECTIVES

Objectives of any research needs to be defined clearly before collection relevant data Based on the main topic of this study, some objectives are summarized as follow

 To understand the background of accounting harmonization

 To discuss the important need of accounting harmonization in global

economy

 To distinguish between accounting harmonization and accounting

standardization

 To determine the main actor of issuance IAS

 To discuss some advantages and disadvantages of accounting harmonization

 To determine three different levels of accounting harmonization

 To determine the impact of “reform process” in 1986 on accounting

environment in Vietnam

 To determine whether Vietnamese Accounting Standards responding to accounting harmonization

 To determine the awareness of Vietnamese accountants

 To discuss how companies in Vietnam response to accounting harmonization

3.2 RESEARCH METHODOLOGY

In order to support the objectives of any research, data and information collected are very important The data and information were collected from two sources known as primary data and secondary data, since entire primary or secondary data is not useful and valid for any research

3.2.1 Primary data

Based on the desired purpose of this study, the researchers collects primary data to support the specific objectives of this study In addition, the results from previous research done by others can not support for this study in the detailed information Primary data takes many forms including questionnaire, interviews, focus group interviews, observations, case-studies, diaries, critical incidents, and portfolios (brent.tvu.ac.uk)

In this study, questionnaires will be used as the most effective way to collect

information The main advantage of using questionnaires is lower cost in comparison

with other methods Moreover, questionnaires might help the researcher collect a lot

of relevant data supporting for this study Another benefit of using questionnaires is questionnaires distribution in a wide range of respondents in many ways Each respondent will be provided a same paper of questions Doing that helps the

researcher can collect the data precisely and easy to comparison The researcher develops the questionnaire in order to obtain the objectives of this study The small challenge when using questionnaires referred here as the time constrain However, the researcher needs to mange the time for distribution surveys and receipt the answers in the reasonable time The data collected from questionnaires might be good without the bias

3.2.2 Secondary data

If the primary data provides detailed information to support and interpret the desired objectives, the secondary data bring the general overview relating to the concept In addition, secondary data expresses the available infrastructure relating topic

Accordingly, the researcher can evaluate the results and determine which objective need to be obtained by using primary data The secondary data includes two types of data: internal data sources, and external data sources (www.steppingstones.ca) Internal data sources include data collected within the company such as financial statements, and other reports External data sources come from outside company Some items belong to secondary data are magazines, books, newspapers, webpage, and so on The secondary data will be collected at the minimal cost, since we can easily use library or search the internet at laboratory or at home However, the secondary data only help the researcher understand the framework and theories around the topic, and is not updated information Therefore, in order to develop the

research well, the researcher needs to combine both types of data (primary data and secondary data)

3.3 RESEARCH INSTRUMENT

Questionnaire is the basic tool for collection relevant information in this study, since

of some benefits received from using this instrument The questionnaire needs to be developed with high quality because this element will cause the effects on response rate directly, and also on the validity of data collected The researcher tries to

develop one set of questionnaire (including nine questions) supporting the aim of researcher through two main points The first point is awareness of Vietnamese accountants The second point is how companies in Vietnam respond to accounting harmonization For the purpose of respondents’ convenience, the researcher wants to obtain the relevant information in the most effective way through one set of

questionnaires (completed survey in appendix I)

In order to attract the respondents and maximize the response rate, all the questions might be designed in simple language for easy understanding The questions were established as short and in easy form Accordingly, these questions encourage the respondents eager to fulfill all of them The budgeted time for completeness this set

of questionnaires is about ten to fifteen minutes

In addition, at the beginning part of the questionnaires, the title and brief explanation are also provided to help the respondents understand the topic easily The following statement is always stated to keep confidentiality for the respondents:

“This survey is developed and distributed for this study’s purpose only Any answers

or results from this survey will be strictly kept under confidence and will not be used for any other purpose Thanks for your cooperation.”

3.3.1Awareneess of Vietnamese accountants of accounting harmonization

In order to gather relating data relating about awareness of Vietnamese accountants belong to accounting harmonization, the researcher collects answer form 4 questions

in questionnaires paper (question No.1 question No.2, question No.5, and question No.8) At the top of these papers, the different job levels of accountants are also expressed, since this information will support for the test hypothesis later All of these questions take easy form to fulfill in few minutes

The questions focus on the awareness of accountants about the term of accounting harmonization, and their degree perceptions relating this concept based on some relevant elements Such items are: training program for accountants to improve their knowledge about international accounting, their ideas whether translating financial statements into English, their extent about the benefits of accounting harmonization

3.3.2 How companies in Vietnam respond to accounting harmonization

There are five questions supporting this idea listed here as question No 3, question No.4, question No.6, question No.7, and question No.9 Such questions also take easy form, and help the respondents save time when fulfillment this set of

questionnaire The different types of companies are also collected from information involved for the purpose of test hypotheses

Under this section, the questions concentrate on selected items accordance with accounting harmonization like that: a person can work with international accounting standards, cash flow statement, the process of translating financial statements into English, the time of companies applied financial statements, and different company’s accounting treatments responding to accounting harmonization

3.4 RESEARCH HYPOTHESES

There are four test hypotheses were established under this study The test using to examine the hypotheses is chi-square test of a contingency table with the significant level chosen of 5% The purpose of chi-square test is for examination if there is enough evidence to show the relationship between two qualitative variables, and indicate the differences among qualitative variables (Antony Selvanathan, et.al, 2004) H0 represents null hypothesis, and H1 represents alternative hypothesis Four hypotheses are listed as follow

H1: Accountants have similar perceptions toward the benefit of accounting

harmonization

Hypothesis 3

H0: Responding to accounting harmonization, there is no relationship between types

of firm and their accounting environments

H1: Responding to accounting harmonization, there is a relationship between types of firm and their accounting environments

3.6 SAMPLING

Because of time constrain and limited budget, the researcher can not conduct this survey for all companies in Vietnam Therefore, the researcher only carries out this survey based for the companies located in Hanoi city and it’s urban

3.6.1 Firms

All of the companies (small, medium, and large companies) come from different types that the researcher wants to explore In addition, the researcher can not conduct this survey in other regions in Vietnam The questionnaires were distributed to manufacturing, banking, and other type of companies

3.6.2 Accountants

Based on these information mentioned above, the sample of accountants include accountants who are working in the sample of companies received surveys Those accountants come from different levels in each typical company

3.8 INTERPRETATION OF DATA

The researcher interprets the primary data and secondary data by the descriptions, comparisons and analyses For primary data, the researcher uses the typical

interpretation for chi-square test by comparison calculated value and critical value for the decision of reject or not reject the null hypothesis

outcomes might be not evaluated at the most convenient way

CHAPTER 4 ANALYSIS OF DATA

This chapter is designed for interpretation of data collected from working process As mentioned earlier, the collected information comes from two sources including secondary data and primary data (questionnaire) conducted and distributed by the researcher All the results can be described at detailed information They can help the readers obtain the initial purposes, as well as the test hypotheses developed by the researcher Based on the typical features of this topic, the researcher decides to organize this chapter into two main parts as analysis from secondary data, and

analysis from primary data The reason for this disposition is to help the readers get

the information logically for more effective understanding Through the analysis of secondary data, the readers can know about the framework of current Vietnamese accounting environment For example: the requirement for accounting harmonization

by effects of reform process in Vietnam; the main actors playing the important role

in making accounting harmonization in Vietnam and implementation of VAS based

on IAS; comparisons between some typical VAS and IAS Moreover, analysis from primary data can help the readers explore the awareness of Vietnamese accountants responding accounting harmonization, and the application of VAS in some

fundamental principles, contents, methods and procedures for recording accounting transactions and disclosure of financial statements Accordingly, users can evaluate the financial situation and operating results of each company in the way of true and fair view

4.1.2 The actors

Vietnamese Accounting Standards (VAS) was issued and promulgated under the direction of Ministry of Finance (MOF) under the Decision No 38/2000QD-BTC (2000) According to Article 1 belongs to this decision defined that VAS developed

on the basic of IAS and IFAC (International Federation of Accountants) Therefore, the nature of VAS started from IAS This described that Vietnam had the effective effort to make its accounting standards harmonization with international accounting

4.1.3 Evaluation the role of MOF in process of establishment VAS

Before establishment of VAS, all accounting methods were applied in Vietnam in accordance with Vietnamese Accounting system (Francis B Narayan et al., 2000) The accounting Policy Department of MOF developed 10 draft Accounting

Standards in process of finalization Those drafts based on the Vietnamese regulation and considered IAS as the base with minimized adjustments Therefore, VAS reflects the characteristic of IAS and becomes the basic tool to make Vietnamese accounting system in accordance with international accounting Until now, MOF issued 26 VAS into 5 series in 2001, 2002, 2003, and 2005 The detailed information and relating

Decision of MOF will be presented in Appendix

4.1.4 Vietnamese Accounting Standards

Under this part of chapter, the researcher listed all 26 Vietnamese Accounting Standards relating to International Accounting Standards All of these standards are summarized into 5 tables as follow Thus, the readers can have the general overview

of VAS References of working process are retrieved from two sources as follow:

Source 1: website http://www.accountancy.com.pk/reference_ias.asp?id=16