Application of ifrs in vietnam opportunities and challenges

1 APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS – OPPORTUNITIES AND CHALLENGES Nguyen Dieu Linh – 0359944806 – CQ5822 05CLC Nowadays, the trend of applying International Financial Report.

APPLICATION OF INTERNATIONAL FINANCIAL REPORTING

STANDARDS – OPPORTUNITIES AND CHALLENGES

Nguyen Dieu Linh – 0359944806 – CQ58/22.05CLC

Nowadays, the trend of applying International Financial Reporting Standards (IFRS) is becoming more and more popular The application of IFRS will enhance the comparability and transparency of financial statements, reduce business capital costs, increase investor confidence, promote cross – border investments, and so on With such

benefits, the application of IFRS will help Vietnam stay on track with The vision to

2035 as well as keep up with the development of the region and the world Applying

IFRS offers Vietnamese lots of opportunities, but it also faces some difficulties

What is IFRS?

IFRS stands for “International Financial Reporting Standards”, issued by the International Accounting Standards Board (IASB) with the aim of creating a common global “language” of accounting, assisting financial statements in being represented consistently, transparently, reliably, and easily comparable to each other regardless of sectors, countries and regions

Importance of IFRS

The IFRS are currently required to be used by public companies based in more than 160 countries, including all the nations in the European Union as well as Canada, India, Russia, South Korea, South Africa, and Chile The IFRS today play a crucial role in every single country because of the following results

First and foremost, by enhancing the international comparability and quality of

financial information, the IFRS make financial statements transparent, and then enable investors and other market participants to make economic decisions wisely Application the IFRS minimizes the margin of error and manipulation of any holdings and irregularities of funds, transactions, and balances In addition, these standards motivate consistency as well as work clarity

The second is strengthening accountability By reducing the gap between the

capital’s providers and the people to whom they have entrusted their money, these

standards make improvement in accountability As a source of globally comparable information, the standards are vitally important to regulators all over the world

Additionally, the IFRS are developed to set uniformity in the presentation and

understandability of statements When everyone follows common law and recognizes these standards, it becomes easy for companies and agencies compare their growth comprehensively

Vietnam has studied and issued 26 Vietnamese Accounting Standards (VAS) based on IAS during the period 2001 – 2005 with 26 standards All of these standards helped to enhance the transparency and reliability of the financial statements, provide high-quality information which is consistent with the management proficiency and peculiarities of the economy during implementation time However, due to the pressure from the market economy and economic integration, VAS has revealed many shortcomings For instance, the recognition and assessment of assets and liabilities at fair value, the recognition of assets losses… have not been instructed clearly by VAS Meanwhile, IFRS with its fair value standards will allow businesses and users of financial statements to have a more fair and accurate view of the financial and operating performance as well as presenting an enterprise's value Therefore, the Ministry of Finance decided to prepare a road map for the implementation of the IFRS According to the implementation scheme, the IFRS will begin on a voluntary basis from 2022, with the mandatory application after 2025

Opportunities of applying IFRS in Vietnam

First of all, the application of the global accounting language IFRS reduces

costs of financial transactions Only by adopting the IFRS, never do companies need to spend extra costs and time to explain information when being requested by management agencies or partners Foreign investors also probably reduce costs in processing accounting information, reducing differences between VAS and IFRS

Second of all, the IFRS help performance of enterprise to be reflected truthfully.

Because of requiring financial transactions to reflect in their nature rather than their names or legal forms, enterprises cannot hide information for specific purposes While some transactions, furthermore, are not specifically instructed by VAS such as

recording and revaluing assets as well as liabilities based on market value, impairment loss of assets, financial instruments, the IFRS has standards relating to revaluation, financial instruments, impairment loss,… which allow enterprises and investors to evaluate and compare more reasonably and accurately about financial position, performance and prevent value of their own companies or competitors in the market

The last, applying these standards during the economic integration period helps

Vietnam attract more investment from both domestic and foreign individuals and organizations than ever before The implementation of IFRS offers partners, investors, especially foreign investors chances of learning, comparing, evaluating financial information in the same international standards to make appropriate decisions When Vietnam applies the IFRS, it can reduce the political pressure on foreign investors In fact, in order to access capital sources in the international capital market, the preparation and presentation of financial statements according to the IFRS is a mandatory requirement Moreover, the application of the IFRS also brings “equality” for new or small foreign investors as they do not need to pay extra costs to convert data Many experts confirmed that the IFRS application makes it easier for enterprises to access domestic and international capital and list on foreign stock markets

Difficulties of applying IFRS in Vietnam

It is undeniable that the benefits of IFRS are substantial; however, Vietnam faces many challenges when implementing the IFRS

The first one is the legal issues In fact, the accounting systems of Vietnam are

affected by tax regulations and financial law Hence, if the IFRS are implemented, there are many differences between accounting and tax regulations

The second problem is system problems The current accounting software

system in enterprise is not completely synchronized and does not have enough features

to insert the IFRS conversion entries This may result in making too much effort as well as mistakes in the calculation process Noticeably, at corporations, the amount of data at some subsidiaries is relatively large and complex, so it is difficult, and time consuming to collect and process for IFRS conversion

The third challenge ishuman resource issues Many types of research showed

that accountants’ proficiency is not enough to meet the requirements of the IFRS as they do not have a thorough understanding of the IFRS to read or apply it in practice Furthermore, mostly the syllabus in economic universities in Vietnam still spends a large time teaching VAS Students barely approach the international standards, so hardly do they apply it professionally after graduating from university Therefore, applying the IFRS in the near future can prevent enterprises from discovering the employees who have the high ability to apply the IFRS

The final difficulty is assessing market information The IFRS requires the

presentation of the assets and liabilities of enterprises at market value at the time of reporting, so the market needs to be active to provide reliable information However, the capital market and financial market in Vietnam were not developed Some financial instruments such as convertible bonds, derivatives, preferred stocks have not been widely traded Therefore, most companies have not had enough experience in conducting recording transactions in such contexts

Solutions to improve the efficiency of applying IFRS in Vietnam

Facing the above–mentioned challenges, state management agencies, accounting and auditing service providers, training institutions and audited enterprises need to take appropriate measures to strengthen advantages and overcome outstanding problems

Firstly, investing more in the development of infrastructure and information

technology in and timely manner, to meet the development trend of the global digital system is necessary The government needs to focus on the network security system, ensures a high level of security of accounting and audit data In addition, it is important

to research and apply audit methods effectively and appropriately, including basic methods and technical methods, especially methods of collecting and evaluating audit evidence, or technical analysis methods in the context of industrialization, in which the accounting profession uses electronic documents, block chain, cloud technology

Secondly, the Government should implement policies to support business The

Government should support enterprises in training policies used for accounting and auditing staff to help them understand the nature of International Financial Reporting

Standards (IFRS) as well as develop guidelines on orientation and encourage labor transformation in the ASEAN Economic Community

Thirdly, it is vital to focus on renovating the training program in order to

approach IAS, IFRS The Government should promote foreign language learning, especially specialized ones, so that students can convert to international degrees more easily Besides, building training content to help students adapt to the digital age after graduation, establishing relationships between training institutions and domestic and foreign businesses to help research activities to be linked, to solve practical issues and

to meet the requirements of enterprises are needed

Last but not least, enterprise can overcome difficulties by training professional

accountants, raising the awareness of managers about the IFRS to reduce the knowledge gap, and proving sufficient resources to support the sustainable implementation of the IFRS Additionally, accountants need to pay attention to having

a deep understanding of the operation of enterprises, capture and analyse information

to be able record transactions according to nature Besides, the companies need to create data infrastructure such as a valuation database about financial model so as to support some requirements of the IFRS

In conclusion, when Vietnam's economy is integrating more and more deeply

with the world economy, the application of IFRS is only a matter of time Therefore, clearly identifying opportunities and challenges in order to build a methodical and effective road map to transform and apply IFRS in Vietnam is extremely necessary The application of the International Financial Reporting Standard in Vietnam needs the synchronous coordination of many stakeholders, from the government, state agencies, associations, businesses to training institutions, and needs to be implemented step by step to gradually overcome difficulties, promote the strengths of the economy and national human resources, integrating with the trend of accounting convergence worldwide in the future

References:

1. IFRS for better financial reporting in Vietnam – NFSC

2. Cơ hội và thách thức khi áp dụng IFRS vào Việt Nam (tapchicongthuong.vn)