000091323 ACCOUNTING FOR FOREIGN EXCHANGE DIFFERENCES A COMPREHENSIVE ANALYSIS UNDER VIETNAMESE REGULATIONS AND INTERNATIONAL ACCOUNTING STANDARDS KẾ TOÁN CHÊNH LỆCH TỶ GIÁ - PHÂN TÍCH TOÀN DIỆN THEO QUY ĐỊNH CỦA VIỆT NAM VÀ CHUẨN MỰC KẾ TOÁN QUỐC TẾ

In trod u ction

Twenty-seven years after Vietnam began its national economic reform—centered on liberalization, stabilization, and openness to the world economy—the country has achieved significant milestones: an average annual growth of about 6.5% from 2007 to 2011, inflation that fell from triple digits in the late 1980s and early 1990s to single digits by 2011–2012, and notable expansion in foreign trade and investment Since joining the World Trade Organization, Vietnam has become an attractive destination for foreign investors worldwide, bringing opportunities as well as challenges for the government and firms, including large inflows and outflows of diverse currencies and the related accounting treatments in day-to-day operations.

To ensure consistency and comparability of accounting figures, enterprises prepare financial statements in a single currency, but foreign exchange differences can pose challenges for accountants When exchange rates are relatively stable, these differences have limited impact on a company's financial expenses; however, in environments where rates are volatile or unpredictable and the national currency is less stable, FX differences become a significant burden on operations The 2008–2009 period saw Vietnamese enterprises experience substantial exchange-rate fluctuations, making the treatment of foreign exchange differences a major concern in explanatory reports and a contributor to reduced profits for many listed firms In response, the Ministry of Finance has issued a range of legal documents and guidelines on accounting for foreign exchange differences; yet, their implementation has been hampered by inconsistencies and conflicts among the regulations.

Given the situation, I carried out a study titled "Accounting for Foreign Exchange Differences—A Comprehensive Analysis under VAS and IAS" to deliver a comprehensive synthesis of the issue and to propose recommendations for improving Vietnamese regulations The research is structured into two main sections: the first provides a detailed analysis of how foreign exchange differences are treated under Vietnamese Accounting Standards (VAS) and International Accounting Standards (IAS), and the second offers actionable insights and policy recommendations designed to better align Vietnamese practices with international standards while addressing local regulatory needs.

Le Mai Lan - Class 1KT09 1

This article analyzes how foreign exchange differences are currently treated under Vietnam's accounting standards (VAS) and how those treatments compare with International Accounting Standards (IAS) It is divided into two parts: treatments under VAS and treatments under IAS, with each part detailing the accounting rules for the four circumstances in which foreign exchange differences arise The first part sets out the precise VAS and IAS regulations for these four scenarios, and the second explains the rationale for VAS's divergence from IAS, identifies current issues in Vietnamese practice, and offers recommendations to improve Vietnamese regulations on foreign exchange differences.

1 Current treatments in VAS and IAS - Theory and application a) Treatments under VAS b) Treatments under IAS

Four circumstances under which foreign exchange differences arise to be illustrated in two above sections:

■/ Circumstance 1: Realized foreign exchange differences arising from settlement of monetary items denominated in foreign currency

S Circumstance 2: Unrealized foreign exchange differences arising from revaluation of monetary items denominated in foreign currency

S Circumstance 3: Foreign exchange differences arising from the translation of the financial statements o f a foreign operation

S Circumstance 4: Foreign exchange differences arising from the application of hedge accounting in order to mitigate potential risks c) Case studies - Comparison and analysis

2 Recom mendations on Vietnamese accounting treatments in VAS

Research significance

Market opening and international economic integration lead enterprises to engage in numerous foreign exchange transactions Yet Vietnamese accounting standards for foreign exchange differences lag behind international standards in terms of simplicity and consistency, creating difficulties for accountants in handling the various types of foreign exchange differences Overall, Vietnam’s standards are more complex, outlining many scenarios and prescribing different treatments for each, compared with the unified approach typically found in international norms.

This study aims to clarify the rationale behind Vietnamese treatments for each type of foreign exchange difference, analyze and synthesize the gaps between Vietnam Accounting Standards (VAS) and International Accounting Standards (IAS), identify current issues in accounting for foreign exchange differences for stakeholders including accountants, auditors, and tax authorities, and propose targeted amendments to existing Vietnamese documents so that accounting figures for foreign exchange differences are reflected more fairly and accurately in financial statements Overall, the research provides a comprehensive view of the problem, clarifies sources of confusion, and contributes to the improvement of the accounting sector New foreign enterprises planning to invest in Vietnam will find this work especially useful, as it offers detailed guidelines for their approach to accounting for foreign exchange differences.

Literature R eview

Term inologies and definitions

For the purpose of comparing and contrasting different standards on accounting for foreign currency transaction in Vietnam and other countries, the following terminologies should be clearly understood:

An accounting currency is the currency officially used for recording accounting entries and preparing financial statements, as outlined in VAS 10 It is also referred to as the functional currency under IAS 21, defined as the currency of the primary economic environment in which the entity operates.

Foreign currency is a currency other than the accounting currency (or the functional currency) o f an enterprise.

An exchange rate is the price at which one currency can be exchanged for another In a floating exchange rate system, this rate is determined by the forces of supply and demand in the foreign exchange market, making it market-driven and responsive to economic conditions.

Accounting for foreign exchange differences is based on the exchange rate set by the authorities within the fixed exchange rate mechanism In Vietnam, there are four main types of exchange rates: the average interbank rate, the rate used to calculate customs duties, the transaction rate used by commercial banks, and the rate used for accounting purposes.

Closing exchange rate is the exchange rate used on the balance sheet date or the spot exchange rate at the end of the reporting period.

Net investm ent in a foreign operation is the portion of capital o f the reporting enterprise in the total net asset o f such foreign operation.

Non-m onetary items are items other than monetary items.

Reasonable value is the amount at which an asset can be exchanged or the value of a liability that may be settled voluntarily between knowledgeable parties under normal market conditions This value applies in either a par value exchange or an arm's-length transaction.

Presentation currency is the currency in which the financial statements are presented.

A foreign currency transaction is any transaction that is denominated or requires settlement in a foreign currency It includes activities such as purchases or sales of products, goods or services priced in foreign currencies; borrowing or lending amounts payable or receivable in foreign currencies; becoming a party to an unperformed foreign exchange contract; purchasing or liquidating assets; incurring or repaying debts denominated in foreign currencies; and using a currency for purchasing, selling, or exchanging for another currency.

M onetary items, as defined in IAS 21, are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

Under Circular 179, monetary items denominated in foreign currencies are identified as cash and cash equivalents, receivables, or payables to be received or paid in a fixed or determinable number of units of currency, specifically including: (a) cash and cash equivalents denominated in foreign currencies; (b) receivables and payables denominated in foreign currencies, except for:

■ Prepayments to suppliers and pre-paid expenses denominated in foreign currencies;

Unearned revenues denominated in foreign currencies, along with deposits and pledges in cash or cash equivalents denominated in foreign currencies that may be received or have to be paid, and borrowings, loans, or deposits denominated in foreign currencies are currency-denominated financial items that impact a company’s balance sheet, liquidity, and exposure to foreign exchange risk, necessitating clear disclosure and precise measurement.

* For the purpose o f the research in accounting for financial instruments:

A financial instrument is identified in IAS 32 as “any contract that gives rise to a financial asset o f one entity and a financial liability or equity instrum ent of another entity”.

Financial asset means any asset that is: a/ Cash; b/ An equity instrument of another entity c/ A contractual right

■ To receive cash or another financial assets from another entity; or

This definition covers two scenarios: first, exchanging financial assets or financial liabilities with another entity on terms that may be favorable to the entity; second, a contract that will or may be settled in the entity’s own equity instruments.

Accounting f o r fo reig n exchange differences

■ A non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instrum ents; or

Derivatives that will or may be settled in ways other than exchanging a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments are described as non-cash settled instruments Such derivatives may be settled by delivering a variable number of the entity’s own equity instruments or through other settlement arrangements, rather than a straightforward cash payment or a fixed share count Understanding this settlement feature is essential for proper classification and reporting of financial instruments.

Financial liability means any liability that is: a/ A contractual obligation:

■ To deliver cash or another financial asset to another entity; or

This definition covers two scenarios: exchanging financial assets or financial liabilities with another entity under terms that could be unfavorable to the entity; and a contract that will or may be settled in the entity’s own equity instruments.

■ A non-derivative for which the entity is or may be obliged to deliver a variable number o f the entity’s own equity instrum ents; or

An equity-settled or non-cash-settled derivative is one that will or may be settled other than by exchanging a fixed cash amount or another financial asset for a fixed number of the entity's own equity instruments In other words, the settlement is achieved through delivery of the entity's own shares or through other arrangements tied to its equity rather than a cash payment This distinction is important for correctly accounting for and disclosing such instruments under relevant financial reporting standards.

Equity instrum ent means any contract that evidences a residual interest in the assets of an entity, after deducting all of its liabilities.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between know ledgeable and willing parties in an arm's length transaction.

Exchange rate difference is the difference arising from the actual exchange or conversion o f the same amount of a foreign currency into the accounting currency at different exchange rates.

1.2.2 Foreign exchange differences arise in the following cases:

Settlement or reporting of monetary items denominated in foreign currency using exchange rates that differ from those initially recognized or previously reported in the financial statements requires adjustment This applies at the investment stage, when forming fixed assets for newly established enterprises (construction in progress activities in the pre-operating stage), and at the operating stage, including construction-in-progress activities during ongoing business operations.

Revaluation of monetary items denominated in foreign currency at the end of the fiscal year applies to two stages: the investment stage, where funds are used to form fixed assets for newly established enterprises (construction in progress during the pre-operating stage); and the stage of business operations, including construction in progress activities.

Translating the financial statements of a foreign operation from its functional currency to the presentation currency is required so the foreign operation can be included in the parent company's consolidated financial statements The treatment of the resulting foreign exchange differences from this translation is addressed in IAS 21, with guidance in paragraph 39 and related provisions, ensuring consistent handling in the consolidation process This approach clarifies how currency translation effects are reflected in the consolidated results and equity.

41) and Circular 105/2003/TT-BTC dated November 04, 2003 of the M inistry of Finance; by which exchange rate differences result from: o Translating income and expenses at the exchange rates at the dates o f the transactions and assets and liabilities at the closing rate Such exchange

Current regulations in Vietnam and experience from other co u n tries

In the recent years, the M inistry of Finance has promulgated various legal documents on accounting for foreign currency differences, including the following:

Decision No 1141 TC/QD /CD K T dated November 1, 1995 on promulgating the business accounting regime.

S Circular 44 TC/TCD N dated July 08, 1997 guiding the handling o f foreign exchange rate difference in state enterprises.

S Circular 77/1998/TT/BTC dated June 06, 1998 guiding the foreign exchange rates for converting foreign currencies into Vietnam Dong for use in book-accounting in enterprises.

'S Circular No 101/2000/TT-BTC dated October 17, 2000 amending and supplementing the Circular No 44 TC/TCDN dated July 08, 1997 guiding the handling o f foreign exchange rate difference in state enterprises.

■S Circular No 38/2001/TT-BTC dated June 05, 2001 amending and supplementing the Circular No 44 TC/TCDN dated July 08, 1997 guiding the handling of foreign exchange rate difference in state enterprises.

S Decision No 165/2002/QD-BTC dated D ecem ber 31, 2002 of the M inistry of Finance promulgating and publicizing six (06) Vietnamese Accounting Standards; including VAS 10 - Effects of changes in foreign exchange rates

S Circular No 105/2003/TT-BTC dated N ovem ber 04, 2003 guiding the implem entation of six Vietnamese Accounting Standards stipulated in Decision No 165/2002/QD-BTC dated December 31, 2002.

'S Circular No 201/2009/TT-BTC dated October 15, 2009 guiding the handling o f exchange rate differences in enterprises

'S Circular No 179/2012/TT-BTC dated O ctober 24, 2012, on the recording, assessm ent, and settlement of the exchange differences in enterprises

Prior to the issuance of VAS 10, foreign exchange differences were governed by Circular 44 TC/TCD N dated July 8, 1997, Circular 77/1998/TT/BTC dated June 6, 1998, and Circular No 38/2001A T-B T C dated June 5, 2001 These guidelines were not fully aligned with contemporary international regulations and standards at the time They generally required that realized foreign exchange differences arising from settlements of liabilities denominated in foreign currencies or from the purchase and sale of foreign currencies be recognized as financial income or financial expenses in the period, while unrealized foreign exchange differences resulting from the revaluation of assets and liabilities denominated in foreign currencies were treated differently based on whether they were long-term or short-term in nature.

For short-term monetary items, foreign exchange differences are accumulated in Account 413 on the balance sheet The problem arises when, in the following period, the enterprise does not apply the exchange rate used before the revaluation on 31 December of the previous period and instead uses the rate announced by banks at the same point in time, which can lead to misstatements of foreign currency gains or losses and distort the carrying values of assets and liabilities To ensure consistent and accurate financial reporting, the entity should apply the pre-revaluation rate for subsequent periods unless a new revaluation is performed, and any resulting differences should be recorded in Account 413 in the appropriate period.

Accounting for foreign exchange differences in this scenario leaves no possibility of reversing the balance to eradicate it; as a result, there is no treatment for the foreign exchange differences arising from the 31 December revaluation.

For long-term monetary items, unrealized foreign exchange differences are managed under the prudence principle, meaning that only foreign exchange losses are recognized.

This article analyzes the key Vietnamese government legal documents that govern the accounting of foreign exchange differences, outlining how each document addresses the proper treatment of currency gains and losses In each section, it assesses the improvements introduced by the document as well as the remaining drawbacks and gaps that still need attention.

VAS 10, introduced on December 31, 2002, brings Vietnamese accounting for foreign exchange differences closer to international regulations and standards The major change from previously used documents is the recognition of unrealized foreign exchange differences According to Circular 105 guiding the implementation of VAS 10, all foreign exchange differences are recognized in financial income and financial expenses in the period they arise Two exceptions allow the differences to be accumulated on the balance sheet: foreign exchange differences actually incurred in construction in progress during the pre-operating stage (amortized in financial income and financial expenses within three years from the date the asset is officially placed in service) and foreign exchange differences arising in the consolidation process of foreign operations.

VAS 10 still has several drawbacks: Article 12 stipulates that foreign exchange differences arising in construction-in-progress for newly established enterprises shall be capitalized and amortized over five years, while those incurred in construction in progress of already operating enterprises are recognized in profit or loss, which can distort financial statements in certain circumstances For example, a company in smooth operation that borrows in foreign currency to fund projects may incur significant borrowing costs; under VAS 10, FX differences on borrowings are recorded as financial expense rather than capitalized as borrowing costs under IAS 23, potentially turning profits into substantial losses Article 12(c) states that for enterprises using a financial instrument for an exchange-rate risk reserve, all loans and liabilities of foreign-currency origin are accounted for at the actual exchange rate when they occur, and enterprises must not revalue these liabilities despite using the reserve, but this raises questions about how to treat financial assets denominated in foreign currencies, creating policy‑selection difficulties for accountants and auditors Article 9 allows using an exchange rate that approximates the actual rate on the transaction date—such as a weekly or monthly average for all transactions in that currency within that period—but if rates fluctuate greatly, the average should not be used for the accounting week or month involved, which also prompts concerns about handling FX differences in hyperinflationary environments where the functional currency depreciates rapidly.

The global financial crisis started in 2008 until the end o f 2010 has significantly influenced Vietnamese financial market One o f its considerable effects was the great volatlity of the exchange rates During the three-year period from 2008 to 2010, Vietnamese market has witnessed the fluctuation of exchange rates from more than VND 16,000 in January 2008 to e ver VND 19,000 per USD in O ctober 2010.

Figure 1: Fluctuations of exchange rates and inflation from 2007-2010 (Source: SBV)

In order to adapt to the changing financial market, the M inistry of Finance has promulgated Circular 201/2009/TT-BTC dated O ctober 15, 2009, which has been considered more favorable for enterprises in accounting for foreign exchange differences Before Circular

Under Section 201, nearly all foreign exchange differences—whether realized or unrealized—are recognized in financial income and financial expenses When exchange rates fluctuate, these differences may result in unusual gains or losses in financial results.

Unlike VAS 10, Circular 201 requires that foreign exchange differences arising from the revaluation of short-term financial assets and liabilities denominated in foreign currency are not recognized in financial income or expenses; instead, these differences are accumulated on the balance sheet and reversed at the beginning of the next period, a regulation that is favorable for enterprises with substantial short-term foreign-currency borrowings because it avoids recognizing large losses from exchange rate fluctuations.

Nevertheless, the regulation stipulated in Circular 201 created a discrepancy with the two accounting policies currently in use—VAS 10 and Circular 201 Many enterprises continued to recognize foreign exchange differences in financial income and financial expenses under VAS 10 while simultaneously applying Circular 201, leading to inconsistent financial reporting and reduced comparability of results.

Another discrepancy concerns the accounting for foreign exchange differences arising from long-term loans Under VAS 10, foreign exchange differences arising in the period are recognized in financial income or financial expenses on the income statement, but Circular 201 allows that if positive foreign exchange differences recorded as expenses lead to business losses, part of these differences may be carried forward to the subsequent year to prevent losses, provided that the amounts expensed in the year at least equal the foreign exchange differences on the portion of long-term balances payable in that year The remaining exchange rate differences shall be monitored and amortized as expenses over at most the next five years This regulation implies that, for tax avoidance considerations, the enterprise only needs to account for the corresponding amount of foreign exchange differences incurred in that period, while the remainder can be recognized in the foreign exchange differences account on the balance sheet (Account 413).

From the analysis above, it is clear that although Circular 201 was designed to enable more favorable accounting treatments for enterprises dealing with a wide range of foreign currency transactions, it also generated misunderstanding and confusion among Vietnamese accountants, which in turn led to a number of material opinions from auditors.

On October 24, 2012, the Ministry of Finance issued Circular No 179/2012/TT-BTC, the latest rule on accounting for foreign exchange differences, covering the recording, assessment, and settlement of exchange differences in enterprises Circular 179 introduces a consistent method for settling unrealized exchange differences on both short-term and long-term foreign currency accounts, replacing the guidance that existed under Circular 201 Consequently, gains or losses arising from year-end revaluation of foreign currency balances, after offsetting, are recorded as financial income or expenses, in the same manner as outlined in VAS 10.

Furthermore, in accordance with Circular 179, transactions occurred in foreign currency will be converted based on actual exchange rate at the time of transaction arising as ruled by the

R esearch m e th o d

Within the scope o f this research, the following questions shall be addressed:

■S How different are the current Vietnam standards from international ones in terms of accounting for foreign exchange differences?,

Potential issues arising from Vietnamese regulations on accounting for foreign exchange differences include inconsistent recognition of FX gains and losses, timing gaps between when exchange-rate movements occur and when they're recorded, and potential misalignment in disclosures that hampers comparability with international practices These problems can distort the readability and usefulness of financial statements, complicate cross-border analysis, and affect investor confidence Vietnamese policymakers can learn from internationally applied standards, such as IFRS and IAS 21, to harmonize the recognition, measurement, and disclosure of foreign exchange differences with global practice Key lessons include standardizing the timing of FX gain and loss recognition, ensuring consistent translation of foreign operations, and strengthening disclosures on hedging relationships and the effects of exchange-rate movements By adopting these approaches, Vietnam’s financial reporting can better reflect foreign exchange differences on financial statements, improving transparency, comparability, and decision-usefulness for users.

To answer the questions, two case studies are conducted after the introduction of the regulations under VAS and IAS The first case examines an independent foreign operation of an international corporation based in Vietnam, with a diverse range of transactions, liabilities, and monetary items denominated in foreign currencies, and it illustrates the three main scenarios in which foreign exchange differences arise The second case analyzes a company that uses forward contracts to hedge against potential exchange rate fluctuations, with its foreign exchange differences treated separately because the relevant accounting requirements are governed by separate standards (IAS 39, IAS 32, and IFRS 7).

Comparisons and analysis are drawn up right after treatments based on the two sets of standards are applied on the accounting books of the two companies.

R esearch findings and discussion o f fin d in g s

Treatm ents under current Vietnam ese regulations

5.1.1 Accounts to be used in accounting for foreign exchange differences according to V ietnam ese standards

To understand Vietnam's accounting standards for foreign exchange differences, this article investigates the system of accounts used, detailing their purposes and contents It then provides a thorough explanation of these accounts and their features before examining the accounting regulations for the four types of foreign exchange differences in Vietnam, as described in Section 1.2.

Enterprises only account for foreign exchange differences in Account 413 - Foreign exchange differences in the following case:

Realized foreign exchange differences and those arising from the revaluation of monetary items denominated in foreign currencies during construction in progress in the pre-operating stage of newly established enterprises, where the investment phase has not yet been completed.

Foreign exchange differences arising from the revaluation of monetary items denominated in foreign currencies at the end of the fiscal year are recognized for entities with operating activities (production and business) and, where applicable, construction-in-progress activities; this applies to enterprises that have both operating activities and construction-in-progress projects, capturing the impact of currency fluctuations on monetary assets and liabilities to reflect the year-end currency risk in the financial statements.

S Foreign exchange difference arising from the translation of the financial statements of a foreign operation.

Basic regulations applied on Account 413 include:

S At the end o f the fiscal year, the enterprise shall revaluate the balances o f the

Cash, cash at bank, cash in transit, cash equivalents, and foreign currency-denominated accounts receivable and payable are valued using the buying rate of the commercial bank at the date the foreign transaction occurred Foreign exchange differences arising from the revaluation of these monetary balances are posted to Account 413; the net amount of increases and decreases in foreign exchange differences is then transferred to financial income or financial expenses.

Realized foreign exchange differences and those arising from the revaluation of monetary items denominated in foreign currencies related to construction-in-progress activities in the pre-operating stage of newly established enterprises shall be accumulated on the balance sheet in Account 413 After the construction-in-progress stage is completed, the accumulated amount shall be amortized, either in full or partially, over a maximum of five subsequent fiscal years to financial income or financial expenses, starting from the date the projects are put into operation.

Foreign exchange differences arising from the translation of the financial statements of a foreign operation are recorded in Account 413 and subsequently recognized in financial income or expenses when the foreign operation is liquidated, in the same period in which profits or losses from the liquidation are recognized.

For groups or corporations, the foreign exchange differences accumulated on the balance sheet reflect only those arising from the translation of the financial statements of foreign operations for consolidation purposes and from the revaluation of monetary items denominated in foreign currencies tied to construction investment activities in the pre-operating stage of member companies.

The debit/credit sides of this account are to serve for the recognition of foreign exchange differences in the below six cases:

■S Foreign exchange losses/gains arising from the revaluation of monetary items denom inated in foreign currencies at the end o f the fiscal year of the operation

Accounting fo r foreig n exchange differences activities, including construction in progress activities (for enterprises with both operation activities and construction investment activities)

S Foreign exchange losses/gains arising from the revaluation of monetary items denominated in foreign currencies of construction in progress activities in the pre operation stage

S Foreign exchange losses/gains arising from the translation of the financial statements of a foreign operation

S Transfer o f foreign exchange gains/losses arising from the revaluation of monetary items denominated in foreign currencies of the operating activities into financial income

Foreign exchange gains and losses realized during the period, or arising from the revaluation of monetary items denominated in foreign currencies linked to construction in progress, are transferred to financial income in full or in part after the construction in progress phase is completed.

S Transfer of foreign exchange gains/losses arising from the translation of the financial statements o f a foreign operation into financial income when liquidating the net investment in that foreign operation.

Due to the recognition of the above cases, Account 413 may have balances in both debit and credit sides, in which:

Balance in Debit side Balance in Credit side

Realized foreign exchange losses, together with losses arising from the revaluation of monetary items denominated in foreign currencies, relate to construction-in-progress activities during the pre-operating stage These losses are recognized as of the balance sheet date and reflect the impact of foreign exchange movements on project costs recorded in foreign currencies.

■f Foreign exchange difference arising from the translation of the financial statements o f a foreign operation which has not been handled at the date of the balance sheet.

Realized foreign exchange gains and losses arise from the revaluation of monetary items denominated in foreign currencies that relate to construction in progress activities in the pre-operating stage, as of the balance sheet date.

•S Foreign exchange difference arising from the translation of the financial statements of a foreign operation which has not been handled at the date o f the balance sheet.

Account 413 - Foreign exchange differences, comprises of three level-two accounts:

S Account 4131 - Foreign exchange difference arising from revaluation at the end of fiscal year

S Account 4132 - Foreign exchange difference arising during the construction in progress stage

S Account 4133 - Foreign exchange difference arising from translation of financial statements o f a foreign operation.

5.1.1.2 Account 515 - "Financial incom e” and Account 635 - “Financial expenses”

In relation to foreign exchange differences, the two sides o f Account 515 and Account

635 rise accordingly in two circumstances:

Transfer the recognized amount of amortized foreign exchange differences arising from construction-in-progress activities (forex gains) in the pre-operating stage to the Income Summary account, so that, upon project completion, these amounts are used to determine the business results.

■S Transfer into Income summary account the recognition into financial income of foreign exchange differences arising from translation of financial statements o f a foreign operation

■S Recognition into financial income the amortizations of foreign exchange differences arising from Construction in progress activities (forex gains) (pre-operating stage) which have been completed

S Recognition into financial income o f the foreign exchange differences arising from translation of financial statements o f an overseas-based establishment

S Recognition into financial expenses the am ortizations o f foreign exchange differences arising from construction in progress activities

S Transfer into Income summary account the recognized amount of amortizations of foreign exchange differences arising from

(forex losses) (pre-operating stage) which have been completed.

Foreign exchange differences arising from translating the financial statements of overseas-based establishments are recognized as financial expenses (forex losses) Construction-in-progress activities in the pre-operating stage, once completed, are included in determining the company’s business results, with any related forex losses accounted for within the financial results.

S Transfer into Income summary account the recognition into financial expenses the foreign exchange differences arising from translation of financial statements of a foreign operation (forex losses).

5.1.1.3 Account 242 - "Long-term prepaid expenses”

Transfer of the realized foreign exchange differences and forex losses arising from the revaluation of monetary items denominated in foreign currencies within construction-in-progress (pre-operating stage) from Account 413 to the project accounts upon completion of the construction activities.

The amortization of realized foreign exchange differences and foreign exchange differences arising from construction-in-progress activities (forex gains) in the pre-operating stage, which have been completed, is recognized as a financial expense.

On the debit side, the balance reflects realized foreign exchange losses, or forex losses arising from the revaluation of monetary items denominated in foreign currencies related to construction in progress during the pre-operating stage, which have not yet been amortized in financial expenses as of the balance sheet date.

1

Treatm ents for four types o f foreign exchange differences under VAS and other

5.2.2.1 Realized foreign exchange differences arising from settlement of monetary items denominated in foreign currencies

Under Article 28 of IAS 21, exchange differences arising from the settlement of monetary items are recognized in profit or loss in the period they arise The sole exception mirrors VAS 10: for monetary items that form part of the reporting entity’s net investment in a foreign operation, these differences are recognized in profit or loss only in the reporting entity’s separate financial statements or the foreign operation’s individual financial statements In consolidated financial statements that include both the reporting entity and the foreign operation, the exchange differences on net investments are initially recognized in other comprehensive income and are reclassified from equity to profit or loss on disposal of the net investment.

Under IAS 21, if a transaction is settled within the same accounting period as it occurs, the entire exchange difference is recognized in that period If settlement takes place in a subsequent accounting period, the exchange differences recognized in each period up to settlement reflect the changes in exchange rates during those periods This results in variation from the treatment prescribed by Vietnamese accounting regulation.

Details on this variation and example of how it is applied under VAS and IAS will be demonstrated in the Case Study section (Section 3.1).

5.2.2.2 Unrealized foreign exchange differences arising from revaluation of monetary items denominated in foreign currency

IAS 21 requires translation1 of both monetary and non-monetary items at the end of each reporting period, specifically:

1 Under IAS 21.23, the terms “translate” and “translation” are equivalent in meanings with “revaluate” and “revaluation” in Vietnamese accounting regulation.

S Foreign currency monetary items shall be translated using the closing rate.

■S Non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction.

S N on-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rate at the date when the fair value was determined.

Under accounting standards, exchange rate differences arising from translating monetary items at rates different from those used at initial recognition (and from those in prior financial statements) are recognized in profit or loss in the period in which they arise If a transaction is settled in a subsequent accounting period, the exchange differences recognized in each period up to the date of settlement reflect the changes in exchange rates that occurred during those periods.

5.2.2.3 Foreign exchange differences arising from the translation of the financial statements o f a foreign operation

5.2.2.3.1 Translation methods to be applied

To understand how foreign exchange differences arising from the financial statements of foreign operations are accounted for, we must first grasp how IAS determines their amount IAS distinguishes translation methods by deciding which accounts are translated at current exchange rates and which are translated at historical rates Accounts translated at current rates are exposed to translation adjustments, so choosing different translation methods yields different translation adjustments.

Tw o most popular translation methods applied worldwide are the current rate method and temporal method: a) Current rate method:

Under the current rate method, a company’s net investment in a foreign operation is exposed to foreign exchange risk To measure this exposure, all assets and liabilities of the foreign operation are translated at the closing (current) rate, while stockholders’ equity items are translated using historical rates A positive translation adjustment occurs when the foreign currency appreciates, and a negative translation adjustment occurs when the foreign currency depreciates The translation adjustment under this method differs in that it is not necessarily realized through cash inflows and outflows, and it becomes a realized gain or loss only if the foreign operation is disposed of and the foreign currency proceeds from the sale are converted.

Under the current rate method, income statement items are translated using the exchange rate in effect on the date of accounting recognition In most cases, it is assumed that revenue and expenses are incurred evenly throughout the accounting period, so an average rate is applied to translate income statement items However, when a specific income statement item occurs at a point in time, the translation uses the exchange rate on that date.

N et asset exposure incurs when the total assets are greater than total liabilities and a net liability exposure incurs when total liabilities are greater than total assets. b) Tem poral method:

Unlike the current rate method, the temporal method assumes that financial statements are prepared in the reporting entity’s functional currency as if the foreign operation actually operates in that currency Under this approach, assets carried at current or future values—such as cash, marketable securities, and receivables—and liabilities are remeasured at the current exchange rate.

Meanwhile, assets and liabilities on the foreign operation’s balance sheet that are recorded at historical cost must be remeasured using historical exchange rates, and stockholders’ equity is translated at historical cost as well.

A net liability exposure incurs when liabilities are greater than the sum of cash, marketable securities, and receivables and a net asset exposure incurs when the sum of cash,

Accounting f o r foreign exchange differences marketable securities, and receivables are greater than liabilities Appreciation and depreciation of the foreign currency will result in a negative and positive translation adjustment respectively.

Under the temporal method, translation adjustments are realized only in two scenarios: first, when the parent company transfers its functional currency to the subsidiary to settle all of the subsidiary’s liabilities in that currency; second, when the subsidiary converts its receivables and marketable securities, held in its functional currency, into cash in the same currency and sends this amount, together with any cash already held in that currency, to the parent, which then converts the total into the parent’s currency.

Under the temporal method, revenue and most expenses are translated at an average exchange rate for the period, while certain asset-related costs—such as cost of goods sold, depreciation of fixed assets, and amortization of intangibles—are translated at historical rates Additional notes on translation under the temporal method include applying historical rates to these asset-related costs and recognizing how the mix of average and historical rates affects reported earnings and asset values on the balance sheet.

S Cost of goods sold = Beginning inventory (Historical rate) + Purchases (Average rate) - Ending inventory (Historical rate).

S Fixed assets, Depreciation and Accumulated Depreciation: those acquired at different times shall be translated using different corresponding historical rates.

Gain or loss on sale of an asset equals the difference between the cash proceeds from the sale, translated at the exchange rate on the sale date, and the asset’s carrying amount, which is measured using the historical exchange rate at the date the asset was initially acquired.

To sum up about the two translation methods, a table detailing the rates to be applied for each item on balance sheet and income statement is provided in Appendix A, page 78.

Under IAS 21, the method chosen to translate foreign operations depends on the functional currencies involved The process begins by identifying the functional currency of the foreign operation; if this currency differs from the functional currency of the reporting entity, the current rate method is applied If the foreign operation and the reporting entity share the same functional currency, the temporal method is used instead.

5.2.2.3.2 Accounting treatments fo r unrealized foreign exchange differences from translation o f financial statements

IAS 21 stipulates regulations on the translation of financial statements from functional currency to presentation currency (when the functional currency is and is not the currency o f a hyperinflationary economy) and the additional rules for special occasions in the translation of financial statements of a foreign operation.

IAS first identifies the case where an entity's results and financial position are reported in a functional currency that is not the currency of a hyperinflationary economy, and the procedures outlined in IAS 21.39 apply.

S Assets and liabilities for each statement of financial position presented (i.e including com paratives) shall be translated at the closing rate at the date of that statement of financial positions;

S Income and expenses for each statement of comprehensive income or separate income statement presented (i.e including comparatives) shall be translated at exchange rates at the dates o f the transactions;

All resulting exchange differences from foreign currency translations are recognised in other comprehensive income These differences arise from translating income and expenses at the rates in effect on the transaction dates, and translating assets and liabilities at the closing rate, as well as from translating the opening net assets when the closing rate differs from the rate used at the previous closing.

Case studies - Comparison and a n a ly sis

5.3.1.1 Realized foreign exchange differences arising from settlement of monetary items denominated in foreign currencies and unrealized foreign exchange differences arising from revaluation of monetary items denominated in foreign currency

ABC Company3, founded in Vietnam in 2006, is a Vietnam-based global serviced residence real estate investment trust that has grown steadily under its management Guided by a vision to become a premier serviced residence REIT with a quality portfolio in key Asian markets, the Trust began with an asset portfolio of 12 strategically located serviced residence properties across seven Pan-Asian countries Since then, its asset value has risen from S$856 million to S$927 million, comprising 14 properties with 2,034 units in nine countries, including five properties in Hanoi and Ho Chi Minh City The Trust's investment strategy and main business activities are defined by its guidelines.

The investment portfolio is primarily comprised of real estate assets, with a focus on serviced residences and rental housing properties It includes investments in real estate-related assets and other related value-enhancing instruments or assets to support diversification and growth.

S Investm ents will generally be for the long-term.

As of the end of 2011, the Trust owned five leasehold properties totaling 818 units in Hanoi and Ho Chi Minh City The portfolio includes a 185-unit property in Hanoi’s central business district, a 90-unit property in Hanoi’s scenic West Lake area just a 10-minute drive from the business district, and a 206-unit property, with the remaining units spread across the other properties.

The Company's name has been changed to protect the confidentiality of internal information and financial figures All numbers and figures presented in this case are drawn from the Company’s books and are assured of their accuracy and originality.

Accounting for foreign exchange differences is managed strategically near the financial districts and the Hoa Lac High-Tech Development Zone Meanwhile, the two Ho Chi Minh City properties, one with 172 units and the other with 165 units, are located in District 1, the city’s prime commercial, diplomatic, and major shopping hub In 2011, total revenues and gross profit from five properties in Vietnam amounted to S$41.8 million and S$25.1 million, respectively.

ABC Company, one of the Trust's five properties in Vietnam, is the subject of this case study All accounting figures cited come from the company's books for 2011 and 2012 On 1 January 2011, the company changed its accounting currency from the United States Dollar (USD) to the Vietnamese Dong (VND) in accordance with Circular No 244/2010/TT-BTC dated 31 December 2009 issued by the Ministry of Finance Prior to that date, the company kept its books in USD to facilitate the inclusion of its financial statements in its parent company's consolidated financial statements, since the parent is a real estate investment trust At year-end during the pre-change period, the company translated its USD-denominated financial statements into VND for submission to Vietnamese management authorities Following the currency change, the company must translate its financial statements from VND into the parent company's presentation currency for consolidation Consequently, to compare foreign exchange differences arising from the translation of financial statements under Vietnamese accounting regulations and IAS, both the 2010 statements (translated USD→VND) and the 2011 statements (translated VND→USD) will be examined.

Due to the nature o f its operation, the -

In te rb a n k exchange ra te at 31 D ecem ber Company carried out and recorded a large

K J 2012 (SBV) number o f foreign currency transactions Under -

USD EU R SGD both Vietnamese accounting regulations and

Under International Accounting Standards, the realized foreign exchange differences for the period and the unrealized differences arising from the revaluation of monetary items denominated in foreign currencies at period-end are recognized in the profit and loss for the year At year-end, the Company revalued its outstanding cash balances using the interbank exchange rate published by SBV.

Foreign Currency - Cash on hand 2,457 20,828 51,174,396

Foreign Currency - Cash at bank 9,560,532,560

At year-end, the Company conducted a revaluation of its accounts receivable, accounts payable, and other monetary items to ensure that their carrying amounts are fairly stated in the financial statements.

V N D e q u iv a le n t a m o u n t (B e fo re re v a l.)

Purchases of goods and services USD 89,231 1,833,697,050 20,828 1,858,503,268 24,806,218

SGD 26,785 461,532,335 17,110 458,291,350 (3,240,985) Management fee payable to parent company SGD 24,540 420,149,340 17,110 419,879,400 (269,940)

AP due to related companies USD 13,576 278,240,120 20,828 282,760,928 4,520,808

VND equivalent amount (Before reval.)

AR due from related companies USD 88,570 1,829,590,490 20,828 1,844,735,960 15,145,470

VND equivalent amt (Before reval.)

IKEA Singapore 1,250 SD 19,776,654 17,110 21,387,500 1,610,846 Harvey Normen 3,689 SD 58,364,861 17,110 63,118,790 4,753,929

Firstly, since the promulgation o f the Decision No 165/2002/QD-BTC dated D ecem ber

With the issuance of VAS 10 on Effects of Foreign Exchange Differences in 2002, the revaluation of monetary items has become an obligation for all Vietnamese enterprises Alongside VAS 10, Circular 179 of 2012 clarifies that when revaluing foreign-currency-denominated monetary balances, enterprises must apply the buying rate announced by the commercial banks on the balance sheet date, at which the enterprises maintain their accounts, instead of the average interbank exchange rate announced by the State Bank.

In Vietnam, ABC Company, like many other businesses, followed the earlier guidance of Circular 201 and had not yet updated to the latest Circular 179 guidance In fact, the company applied the State Bank of Vietnam's interbank rate for revaluation purposes at the end of 2012.

According to the explanation above, the rate of VND 20,828 per USD 1 cannot be applied for the year 2012 Instead, the Company should obtain the 31 December 2012 exchange rate from each commercial bank where it maintains accounts, ensuring that financial statements reflect the correct year-end currency rates across all banks.

HSBC, the accounts, Vietcombank, Citibank and

I USD/VND Exchange rates on Monday, 31/12/2012

The revaluation figures for cash accounts o f ABC Company shall then be recalculated as below:

Foreign Currency - Cash on hand 2,457 20,836 51,193,438

Foreign Currency - Cash at bank 9,502,042,736

On December 31, 2012, the cash amount revalued in VND from foreign currencies is compared with the equivalent cash in VND recorded in the company’s accounting books The recorded equivalent cash in VND on that date was 9,498,543,080 As a result, an unrealized foreign exchange gain of 3,499,656 VND arises from the revaluation of cash denominated in foreign currencies, calculated as 9,502,042,736 minus 9,498,543,080 This unrealized foreign exchange gain will be recognized in the Company’s Financial Income account.

For both accounts payable and accounts receivable, the company must use the end-of-period exchange rates published by the commercial banks where the original transactions occurred when performing revaluations The correct revaluation should therefore reflect these end-of-period bank rates, ensuring accurate and consistent financial reporting and alignment with market exchange rate movements.

Purchases of goods and services USD 89,231 1,833,697,050 HSBC 20,810 1,856,897,110 23,200,060

Management fee payable to parent company SGD 24,540 420,149,340 Citibank 17,465 428,591,100 8,441,760

AP due to related companies USD 13,576 278,240,120 Vietcombank 20,815 282,584,440 4,344,320

AR due from related companies USD 88,570 1,829,590,490 Vietcombank 20,815 1,843,584,550 13,994,060

The am ount o f foreign exchange loss from revaluation of Accounts payable shall then be

Under SBV interbank exchange rates, the correct figure is VND 43,994,855, not VND 25,816,101 This loss shall be recognized in the Company's Financial expenses account The foreign exchange gain arising from the revaluation of accounts receivable shall then be recognized in the Company's Financial income account.

V ND 287,658,354; not VND 342,144,603 as under the interbank exchange rates provided by

SBV This am ount of loss shall then be recognized into Financial expenses account of the Company.

The second problem that has trapped many Vietnamese enterprises as well as ABC Company in the above case is that both IAS 21 and Vietnamese accounting regulations stipulated that only monetary items denominated need revaluating at the end of the reporting period Circular 179 has also identified the com ponent of monetary items, which include cash and cash equivalents, receivables or payables to be received or paid in a fixed or determinable number of units o f currency:

• Cash and cash equivalents denom inated in foreign currencies;

• Receivables and payables denom inated in foreign currencies, except for: o Prepayments to suppliers and pre-paid expenses denominated in foreign currencies; o Unearned revenues denom inated in foreign currencies;

• Deposits and pledges in cash or cash equivalents denominated in foreign currencies which may be received or have to be paid;

• Borrowings, loans or deposits denominated in foreign currencies.

Conclusions on theoretical treatm ents and case studies

From all the above analysis through case studies, it can be concluded that there are both m any similarities and differences between Vietnamese regulations and International Accounting Standards in terms of accounting treatments for different types of foreign exchange differences.

Since the promulgation of VAS 10 and the reform of subsequent circulars, notably Circular 179, Vietnamese accounting policymakers have progressively refined their treatments by learning from and applying IAS regulations A major amendment is the recognition of unrealized gains and losses as income and expense for the period, and thus including them in the income statement At the start of each new year, both Vietnamese regulations and IAS require no reversing entries, meaning that the value of every monetary item at the beginning of the new period equals the revalued amount carried forward from the end of the previous period Regarding foreign exchange differences arising from translating the financial statements of foreign operations, the Vietnamese method aligns with IAS guidance as reflected in the applicable Circulars.

161 is also the same as current method under IAS 21, which means that the calculated amount o f foreign exchange differences is also the same.

Vietnamese regulations create some divergence in practice: they do not require newly established enterprises to recognize all realized foreign exchange differences or those arising from the end-of-period revaluation of monetary items, in order to support their early-stage operations For construction in progress activities at the pre-operating stage, enterprises may recognize these foreign exchange differences in their accounting records.

Assets are recognized on the balance sheet and amortized over a maximum of five years after the activities are completed and put into operation Under IAS 21, there is no distinction between construction-in-progress at the pre-operating stage and the operating stage, so all realized and unrealized gains and losses from year-end revaluations are recognized in profit or loss The next issue concerns the translation method used to measure foreign exchange differences from translating the financial statements of foreign operations Vietnamese regulations define inseparable foreign operations and independent foreign entities; in inseparable foreign operations, foreign exchange differences are recorded in the parent company’s books as if the parent had conducted the transaction For independent foreign entities, the method is applied similarly to the current-rate method in IAS 21, but IAS 21 itself does not necessarily distinguish between inseparable and independent operations, instead focusing on the foreign operation’s functional currency to decide whether to use the current-rate or temporal method; if the foreign operation’s functional currency is the same as the parent’s, the current-rate method applies; otherwise, the temporal method applies Finally, hedging-related foreign exchange differences are treated very differently: IAS 39 governs fair value measurement, year-end revaluation of fair value, and the use of separate accounts for financial instruments, whereas Vietnamese regulations treat foreign exchange differences from hedging as ordinary realized gains or losses when the instrument matures.

Building on the principal similarities and differences identified, this study presents targeted recommendations for the next phase of research, with the aim of improving Vietnamese regulations and aligning them more closely with international standards These recommendations are designed to enhance regulatory effectiveness, harmonize practices, and support Vietnam's commitment to global governance norms.

R ecom m endations

6.1 W idespread updates and explanations on new regulations:

Case scenarios clearly demonstrate that the rapid promulgation of Circular 201, followed shortly by Circular 179, has significantly increased the difficulty and confusion for enterprises In particular, Circular 201 fostered an inappropriate conception about compliance requirements.

Realized and unrealized foreign exchange differences have led many financial managers to continue applying reversing entries Circular 201 was issued as a temporary solution to the high volatility of foreign exchange rates during Vietnam’s 2008 financial crisis and did not treat end-of-period monetary item revaluations as real income or expense, so they were not recognized directly in profit and loss (financial income and expenses) In contrast, both VAS 10 and Circular 179 recognize that unrealized gains and losses from year-end translation are real income and expenses that affect a company’s results and should be included in its period’s financial performance.

Regulatory updates in Vietnam, including new circulars and other rules, have not been widely disseminated to every enterprise Many firms only become aware of changes to accounting treatments for foreign exchange differences under Circular 179 after their financial statements are adjusted by auditors Without input from auditors, thousands of enterprises lack timely updates on new government promulgations, leaving them unsure about the latest rules This gap complicates the comparability of financial results, since different entities may apply different accounting treatments.

The primary recommendation of this study is that the government should keep enterprises informed about new regulations by disseminating updates more broadly This can be achieved through wider media outreach and through the tax authorities and provincial government agencies to ensure timely, clear communication across all regions.

O nly when provided with updates about new regulations can the enterprises be able to present their financial statements under consistent treatments and thus produce highly comparable ones

6.2 Suggested adjustments and additions in current Vietnam ese regulations

Under VAS and current applicable Vietnamese regulations, foreign exchange differences are classified into three main categories: realized differences recognized in the period, unrealized differences from end-of-period revaluation of monetary items, and unrealized differences from translating financial statements, with hedging accounting differences treated as of the same nature as the first two categories Additionally, foreign exchange differences can arise when an enterprise changes its functional currency.

Vietnam's Ministry of Finance issued Circular No 244/2009/TT-BTC on December 31, 2009, governing changes in a company's functional currency Article 8 states that when significant changes in management and business operations cause the current functional currency to fail its criteria (as set out in Clause 2, Article 5), enterprises may change their functional currency When a change is made, all balance sheet items must be translated into the new functional currency using the interbank average exchange rate prevailing on the date of the currency change However, this presents a challenge because comparative figures from the previous year must also be restated.

S Figures at the beginning of the period on balance sheet: shall be converted using interbank exchange rate on the date o f change o f the functional currency.

S Last year figures on income statement and cash flow statement: shall be presented at the beginning o f the year by using the interbank average exchange rate o f the previous year.

The conversion of last year’s figures will, of course, give rise to foreign exchange differences as values are translated at different rates for the balance sheet, income statement, and cash flow statement However, there is currently no standard or regulation in Vietnam that prescribes the accounting treatment for this type of foreign exchange difference Additionally, Circular No 123/2012/TT-BTC, which governs corporate income tax calculation, does not provide guidance on whether such FX differences should be treated as deductible expenses (in a loss) or as taxable income (in a gain) for CIT purposes In practice, many enterprises undergoing functional currency changes under Circular 244 remain confused about both the accounting treatment and the tax implications of these differences.

Thus, the second thing to be recommended under the scope of this research is that the

Vietnam should undertake a thorough review of foreign exchange differences arising from changes in the functional currency of enterprises and implement supplementary regulations that clearly define how these differences should be accounted for and recognized The new guidance would standardize accounting treatment, enhance transparency in financial reporting, and reduce earnings volatility caused by currency movements Aligning domestic practices with international accounting standards can also improve investor confidence and the overall reliability of financial statements.

Circular No 244/2009/TT-BTC of the Ministry of Finance describes the case of an independent subsidiary of a foreign parent company that operates in Vietnam and uses a foreign currency as its functional currency At the end of the reporting period, that subsidiary must translate its financial statements denominated in foreign currency into financial statements in Vietnamese dong (VND) for statutory reporting This translation requirement clarifies how foreign currency financial statements are presented in Vietnam and ensures consistency with Vietnamese accounting rules.

V ietnam Dong for the management and tax purpose in Vietnam.

Article 6 in Circular 244 regulated that for the purpose o f financial statement submission to Vietnamese authorities, the enterprises will have to translate both its balance sheet and income statem ent using the interbank average exchange rate at the end of the period The purpose o f this

Although the translation method is valued for its simplicity and its avoidance of foreign exchange differences, entities still need to prepare the translated figures at period end By applying the translation guidance outlined in VAS 10 and IAS, they can produce more completely disclosed financial statements with more accurately valued amounts for each balance sheet and income statement item.

Regulation in Circular 244 has created inconvenience and an excessive burden of procedures for such enterprises The Vietnamese government should amend this regulation to align it with Vietnamese Accounting Standards (VAS) and International Accounting Standards (IAS) Doing so would allow these enterprises to prepare only one set of financial statements in Vietnam Dong, with translated figures that are more accurate and comparable.

Under Vietnam's current regulations, enterprises may use two exchange-rate regimes: the real exchange rate, which includes rates issued by commercial banks, the State Bank of Vietnam, or interbank rates, and the accounting rate, which is fixed by each enterprise The application of either rate creates foreign exchange differences, which are recorded in the Foreign exchange differences account.

Financial income/expense accounts (Accounts 515 and 635) are not reasonably measured and are, in fact, meaningless For example, when a company incurs accounts receivable denominated in foreign currencies, it records the transaction at the fixed accounting rate used by its system on the date of the transaction Then, at period end, when the company revalues its monetary items, the foreign exchange differences arising from that receivable come from the difference between the rate on the revaluation date and the company’s fixed accounting rate, rather than from the difference between the revaluation date rate and the real market rate on the date the transaction occurred.

Proposed government regulation would standardize the recognition of a single foreign exchange rate for enterprises, selecting the rate from either commercial banks or the interbank market This rule would make foreign exchange differences and the financial results of companies—especially those heavily involved in foreign currency transactions—more fairly and accurately reflected.

6.2.4 Application and accounting treatments for financial derivatives

Tiêu đề	Accounting for foreign exchange differences: a comprehensive analysis under Vietnamese regulations and International Accounting Standards
Tác giả	Le Mai Lan
Người hướng dẫn	Ms. Dinh Thi Mai
Trường học	Hanoi University, Faculty of Management and Tourism
Chuyên ngành	Accounting
Thể loại	Thesis
Thành phố	Hanoi

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